Under basic tax principles there is still a taxable benefit for travel, but a tax exemption was introduced for this some years ago. A recent case has helped to define the way in which this operates.
The relief extends to situations where the employer does not provide the service itself but 'supports' a local bus company to provide it. What does support mean? Nottingham City Council paid for a bus pass to allow an employee free travel on certain Nottingham buses. It argued that the cost of the pass included a profit element for the bus company and therefore in buying the ticket it was providing support. It pointed to debates in Parliament, where the minister stressed that the legislation was a 'green' measure, which encouraged employees to use public transport.
The tribunal rejected this argument. It said that simply buying a bus pass for an employee was not support: support meant that the employer had to do something more. Frustratingly however it didn’t say what that 'something' should be. It did say that it was not necessary for the employer to 'take some financial or other responsibility for running the service', but beyond that left it up to future tribunals to decide this on a case-by-case basis, depending on the facts presented to them. So we still don’t really know the limits of the exemption.
There is a supplementary point. HMRC has said that support must be provided for travel on a particular route. The tribunal said that while that was the strict reading of the legislation the reality was that commercial practice had changed and tickets were no longer provided for specific routes – bus ticketing is now organised on a zonal basis. On HMRC’s interpretation therefore no support for local bus services, even if all of the other conditions were met, could ever apply because it would fail the 'specific route' test. To get round this problem the judge adopted the principle that 'the statute is always speaking' to interpret the legislation in the light of changed circumstances. Taking examples from such disparate areas as in-vitro fertility, torture, and same-sex partnerships, she decided that a zonal bus pass would, if all of the other conditions were met, qualify for relief.
And you thought that tax cases were only about tax!
If you would like to discuss any of the points raised, please contact Andrew Hubbard or your usual RSM contact.