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HMRC internal manual

Employment Income Manual

Employees using own cars or vans for work: outline and definition of passenger payments

Section 233 ITEPA 2003

There is an additional exemption from tax for payments to employees using cars or vans (but not other kinds of vehicle) on business journeys for carrying as passengers fellow employees for whom the travel is also business travel.

The key features of the exemption are:

  • it is solely an exemption from tax and not a relief, see EIM31410 
  • the employee whose car or van is used must be travelling on a business journey
  • the employee must receive mileage allowance payments in respect of that journey (MAPs can be paid in respect of company vehicles, but they cannot be exempt from tax as AMAPs; see EIM31210)
  • the additional passenger payments to be exempted must be specifically for carrying as passengers fellow employees for whom the journeys are also business travel (business passengers). There are two main aspects to this:

    • if an employer pays a business travel mileage rate above the statutory rates (EIM31240) and pays at this level whether or not the employee is carrying passengers, none of the excess can be covered by the passenger payments exemption on those occasions when the employee carries business passengers. For example, if the employer always pays 50p a mile, even when there are no passengers, the maximum tax free amount per business mile will still be the standard 40p (45p from 6 April 2011) a mile AMAPs rate, even for business journeys on which there are business passengers.
    • the journey must also count as a business journey for each of the fellow employees for whom the payment is to be exempted. For example, the driver and 2 colleagues are all required to attend the same business meeting at a location away from the permanent workplace.
  • the vehicle used must be a car or a van. Unlike the AMAPs rules, the passenger rate exemption can apply where the vehicle used is a company car or van, provided the employee is chargeable to tax on car or van benefit (so it cannot apply to pooled cars or vans). Whether the vehicle is a company vehicle or privately owned, the only payments that qualify for the exemption are those specifically for carrying passengers.
  • as this is an exemption from tax, there is no need for any dispensation (nor is one possible). But employers should keep adequate records to demonstrate that payments made satisfy the conditions for exemption.

The exempt amount

Details of how to calculate the exempt amount, the approved amount for passenger payments, are at EIM31405. There is an example at EIM31415.