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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Particular benefits: exemption for subsidies to public bus services

S243 ITEPA 2003

This is an exemption which was introduced to allow employers, unable or unwilling to operate their own works bus, to provide an alternative method of transport for their employees.

Without the exemption, tax would be charged if an employee received a free or discounted bus pass for travel on a route stopping at or near the workplace or travelled on a route stopping at or near the workplace that had been improved as a result of the financial or other support being provided by the employer.

How does the exemption work?

When an employer provides financial or other support to a public transport company running a public transport road service a benefit could arise on the employees if

  • The public transport company improves the particular public transport road service. For example adding an extra stop outside the workplace, running extra services during rush hour or late at night or continuing a service which was under threat of removal.
  • For a local bus service, the public transport company provides free or discounted passes for the particular public transport road service.

S243 ITEPA 2003 exempts this benefit provided certain conditions are met. The exemption for a free or reduced price bus pass is limited to local bus services (as defined in the 1985 Transport Act) that have regular stops along their route.

The conditions

  • The employees must use the service at least partly for qualifying journeys (qualifying journeys means the same as for the works bus exemption at EIM21850 and the definition also includes journeys between home and work, or between workplaces, that are completed only partly on a bus - for example an employee may drive a car to a Park and Ride (or similar) pick up point and complete their journey on public transport).
  • The service must be available to all employees of the employer.
  • The financial or other support provided must be meaningful - it must make a difference to the particular service or services that support the workplace and it must be paid or provided on an annual basis.
  • The financial support must not be recoverable from the employee at any time.
  • The other support must not be provided in the course of the day to day function of the employer. So a local authority advising on local transport issues would be classed as business as usual and would not satisfy the terms of the exemption.
  • The ticket or pass provided as a result of the financial or other support must be for a specific service or services that serve the workplace. A pass that covers a network of routes in a local area or zone will not meet the terms of the exemption.

Other points

  • An employer negotiating a discount using their bulk purchasing power would not be supporting the particular service or services. Buying a ticket is a normal commercial arrangement and not financial or other support.
  • There would be no charge under Part 3 Chapter 4 ITEPA 2003 (see EIM16000) if the employee was provided with a voucher, such as a season ticket, for travel on the bus. But the season ticket in question must be limited to the particular bus route or numbered service for which the employer has provided financial or other support.
  • Where an employer offers bus pass salary sacrifice arrangements to their employees that are intended to take advantage of the exemption in S243 ITEPA 2003 the arrangements must satisfy all of the conditions above.