Green transport scheme under threat from HMRC

A 'green' commuter scheme that provides discounted bus passes to thousands of staff across the UK is under threat following new advice from Her Majesty’s Revenue and Customs (HMRC).

Travel behaviour change organisation ACT Travelwise this week urged the Government to intervene to save the ‘salary sacrifice’ schemes, whereby staff purchase bus passes from their gross pay, thereby saving on national insurance and income tax.

HMRC says the schemes are based on a misunderstanding of employee taxable benefit rules that were designed to allow employers to subsidise bus services for employees. 'We have become aware that the employment income exemption for support for public buses is being used in salary sacrifice arrangements that are aimed at providing employees with bus passes,' says HMRC’s advice.

It says the schemes are “based on an incorrect understanding” of the rules. Specifically, HMRC says the problems with bus pass salary sacrifice schemes are two-fold: first, they do not provide direct support for specified bus routes or specified bus services; and second, even where this type of direct targeted support is provided, the benefit of free travel is provided by way of an area-wide bus pass instead of being limited to free travel on the particular service for which support has been provided.

HMRC says it will allow existing bus passes to run their course but will not accept new arrangements 'that rely on area bus passes as opposed to travel on a specific supported bus route'.

A spokesman for employee benefits firm P&MM, which has set up a number of bus pass schemes, told LTT it had suspended the introduction of new schemes. It is currently in discussions with HMRC about the advice. One of the issues P&MM has raised is that some operators only offer zone-based passes.

ACT Travelwise director Colin Black told LTT the HMRC advice was 'hugely disappointing'. 'It simply does not make sense that employers can subsidise workplace parking 'In the USA employers are actively encouraged through the tax system to provide subsidies to encourage bus use. Canada and a number of other European countries are in the process of changing tax legislation to help realise the sustainable transport benefits as evidenced by the Transit Benefits scheme in the USA.'