It’s an emergency…

12 May 2018

This article was featured in the June 2018 issue of the magazine.

Peter Minchinton, employment taxes senior manager for PSTAX, provides another article revealing yet further changes to the taxation rules of emergency vehicles

Here we go again... In previous articles we have discussed the changes to the tax legislation regarding the use of assets, which came into force from 6 April 2017. Part of that change eliminated the opportunity for emergency service officers to deduct the business element of the vehicle provided for emergency use. This meant that those officers who used their vehicle mainly for business use had a significant increase in their taxable benefits.

As the legislation was rushed through because of the unexpected general election in May 2017 – and the lack of information generally – emergency services didn’t find out about the change until June of that year. Many organisations, including the firm of the author of this article, made representations to HM Revenue & Customs (HMRC) which culminated in guidance being issued by that department in December 2017. However, this guidance contained a number of inconsistencies and the author and colleagues met with HMRC to discuss these. These were covered in article written by a colleague in a previous edition.

We were subsequently advised that further guidance would be issued which was done just after Easter 2018; hence this additional, and sincerely hoped for, last article on the subject. The representations made to HMRC caused a U-turn and HMRC announced that transitional legislation would be introduced covering the period from 6 April 2017 to 5 April 2020; giving emergency services some breathing space to make alternative arrangements. The announcement advised that there would be two aspects to the transitional rules. emergency services some breathing space to make alternative arrangements


Firstly, the government has decided to extend the scope of the emergency services vehicle tax exemption under section 248A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). This section of the legislation provides for a complete exemption from a tax charge where a number of specific criteria are met including allowing the officer some limited private use of the vehicle. The existing legislation allowed on-call commuting mileage and private use during on-call periods to be undertaken without a taxable benefit arising. However, the officer may now also be able to use the car for general ordinary commuting as well if the primary reason they have use of the emergency vehicle is because they need it for business travel in the normal course of their job. This meant that employees with emergency vehicles who would have been taxed for 2017–18 under the ‘use of assets’ legislation could now meet the emergency vehicles exemption if all the relevant conditions are met.

Whilst that takes care of cars covered by the emergency vehicles exemption this still left those vehicles taxed under section 205 ITEPA – ‘use of assets’ legislation – that would still have faced a significant increase in their taxable benefits. 

Therefore, the second part of the announcement advised that where emergency vehicles are available for private use of employees – and the terms of section 248A are not met – they will continue to pay tax on a similar basis as that up to 5 April 2017 until 5 April 2020. This means that for this limited period only affected individual will be able to reduce the taxable benefit by reference to the business use. However, there is to be one significant change.

Prior to 5 April 2017 any reduction in the benefit for any payment made by the employee towards the costs of the benefit was made before the reduction in the business element. Although an illogical method, as the payment by the employee was normally for private use, it did follow the way that the legislation was set out. It was also the way that HMRC’s compliance teams would insist the calculation should be completed.

The revised guidance now allows the payment made by the employee to be deducted after the reduction for the business element. 

That would have been the end of this article except that late one evening at the end of April 2018, HMRC issued yet further guidance amending the way that the Class 1A NICs should be calculated. This revision will mean that the figures used to calculate both the tax and the Class 1A NICs will be the same. Using the example, the amount chargeable to both tax and Class 1A NICs would be based on the figure of £1,292. Please note that this does not apply to any tax year before April 2017. 


Are we there yet?

Is this the end of the saga? The transitional legislation that is being introduced in the next Budget will be applied retrospectively to 6 April 2017 and will run to 5 April 2020. From 6 April 2020, the legislation originally introduced from 6 April 2017 will come into force and the vehicle calculations will lose the ability to deduct the business element and the only deduction will be for unavailable days, which is a whole new minefield.

On the other hand, pressure may well cause the transitional legislation to be made permanent. We shall wait and see. In the meantime, emergency services employers should take the opportunity to consider their options before the changes come into force.