Tax-Free Late Night Taxi Rides for Work: A Guide for Company Directors

Late Night Taxis: A Tax-Free Perk

Working late can be a hassle, especially when public transportation is scarce, and you find yourself stranded at the office. But here’s some good news for freelancers, contractors, and company directors who have to burn the midnight oil: your company can foot the bill for your ride home without triggering a taxable benefit. Let's delve into the guidelines that make these free rides a possibility.

Understanding the Late-Night Tax Exemption

To benefit from this tax exemption, a few specific criteria need to be met:

• The taxi ride must be from your workplace directly to your home
• It’s essential to meet either the 'late working conditions' or the 'car-sharing failure conditions'
• This perk can be enjoyed no more than 60 times each tax year
  

Meeting the Late Working Conditions

Here’s what it takes for your taxi ride home to qualify for a tax exemption under 'late working conditions':

• Work till 9pm or Later on a Non-regular Basis: You must work later than your usual end time and at least until 9 pm. However, this overtime should not be a regular pattern. For instance, if you usually conclude your consultancy work by 5 pm but one evening you need to troubleshoot a client's problem until 10 pm, you meet the first condition. Conversely, if working past 9 pm becomes predictable, the exemption waivers.
• Public Transport Availability: At the time you finish work, either public transport has stopped running, or using it is no longer a reasonable option. This could be due to reduced service times or issues concerning personal safety.

The Irregular Twist

The exemption also hinges on the irregularity of late-night work. Let's say you’re a software developer who typically wraps up at 5 pm. If a server failure requires you to work until 11 pm over several days to resolve the issue, this would be considered irregular, and you’d qualify for the tax-free taxi. 

But if late evenings are par for the course in your job description or contract, such as with some hospitality roles, then the exemption doesn't hold up.

Record Keeping: A Necessary Proof

You should establish and maintain stringent record-keeping practices to demonstrate that all rides meet the exemption conditions. This includes keeping a detailed log of all late-night taxi rides provided - which is easily done if you’re using digital tax apps. 

When Car Sharing Fails

There’s an additional exemption for taxi rides if you usually commute with a colleague and the arrangement fails unexpectedly. Think along the lines of the shared vehicle breaking down or the car owner having to leave unexpectedly. However, these circumstances must be unanticipated and emerge after both of you have already arrived at work.

The Tax Savings

To understand the tax savings, let's run through an example assuming you need one late night taxi a month at £30 each, equivalent to £360 a year (12 x £30).

• At a corporation tax of 20%, you will save £60 of corporation tax (0.2 * £360)
• In addition, because the company is bearing the cost you will save approximately £180 of personal tax. 
• This is because, if you’re a higher rate tax payer, you'd need to earn £543.40 of dividends to be left with £360 after paying £183.40 of tax on dividends at 33.75%.
• In total therefore, the corporation tax and income tax savings amount to a whopping £240!

Therefore if you wanted to pay for any late night taxis home, it’s incredibly tax efficient to do this via your business (rather than pay for it personally).

How do you claim the exemption?

Claiming the exemption in Mighty is incredibly easy, here's how to do so in 3 simple steps.

1. Buy the advice through your company, and find the transaction in your bank feed
2. Select the transaction and categorise it as a 'Travel' under the Day-to-Day tab
3. Click 'Approve' and Mighty will automatically apply the tax savings for you in real time.
   

And that's it, you've just saved yourself over £350 of tax 100% legally!

If you're not with Mighty, you should make a note of this transaction, and let your accountant know what this specification transaction is for. They should then be able to claim the exemption and apply the tax deduction manually for you.

In Summary

Late nights at work don't always have to end with a pricey ride home. Know the rules, and you could be ending a long day by lowering your tax, and without spending a penny of your own money on a taxi fare!

At Mighty, we specialise in making accounting fast, easy, and affordable. We provide jargon free tax advice, with easy to use software and expert accountants on hand to help.

If you're interested in simplifying your accounting, understanding your finances, and getting the most out of your money, visit Mighty Accounting for a full free 30 trial - no credit card required! 

Mighty helps you manage your books, keep compliant with HMRC, and save on taxes, all while minimising stress.