Save Tax on Transport For Disabled Employees Between Home And Work

At Mighty, we're committed to making accounting and tax and financial admin straightforward, especially for those with additional challenges. That's why today, we're focusing on a special tax exemption linked to transport for disabled employees.

In this article, we'll break down how it works, show a real world example of how you could save over £1,900 a year in tax, and explain how to claim these tax savings in your own accounts.

Ready? Let's dive in.

Understanding the Tax Exemption for Travel Costs

In general, the costs of travelling between home and the workplace aren't allowable and can trigger 'benefit in kind' taxes for the employee. For freelancers working via a limited company, travel isn't an allowable expense unless it is deemed a 'temporary workplace' (e.g. their client's site) which can be the case for a lot of freelancers, but even then, a 24-month rule applies.

However, the UK tax system recognises the additional challenges that disabled people may face when traveling to and from work. As a relief measure there are no 'benefit in kind' or additional Income Tax charges when a disabled employee has the cost of their home to work travel paid for or reimbursed by their employer, as outlined within HMRC's Employment Income Manual (EIM10080).

So if you're a company director that cannot travel to work due to a disability, this can be a great tax advantage for you. For example, the employer (i.e. your limited company) could pay for the employee (i.e. you) to get an Uber to work every day. The cost would be tax deductible for the company and there would be no 'benefit in kind' charge for the employee, even if the workplace wasn't classed as a 'temporary workplace'. A full breakdown of the possible tax savings are illustrated further down.

Who qualifies as a disabled employee?

This term refers to an individual with a physical or mental impairment that has a substantial and long-term impact on their ability to perform everyday activities.

On the flip side, if an employee's ailment doesn't hinder their daily tasks, or if they are undergoing treatment that negates the effects of the disability, they unfortunately will not qualify for this exemption.

Important to note

This exemption does not apply when a car is specifically provided for a disabled employee's home to work travel. For such scenarios, a different set of rules and exemptions apply as outlined below.

Tax Exemptions on Cars for Disabled Employees

In general, providing a company car to employees tends to trigger a benefit in kind income tax charge. This is the case unless they’re only made available for business use, which is extremely difficult to manoeuvre logistically for freelancers without a permanent office.

However, for professionals who may require a company car due to their disability, there's good news – certain conditions exempt them from the Income Tax benefit in kind that usually accompanies a company-provided vehicle.

Here are the conditions for exemption:

• The car must be modified to suit the employee's special requirements, or if it's an automatic and the employee's disability necessitates this.
• The use of the car is restricted to business-related travel, commuting, or travel for training falling under exemption provisions.
• During the tax year, the car is solely utilised in line with these stipulated terms.

Should these conditions be unmet, the standard heavy taxation on the car and fuel benefits will apply. More information on this exemption can be found in HMRC’s Employment Income Manual (EIM23660).

A real world example:

Let's consider a practical example to demonstrate the savings you could achieve by purchasing travel through your business, instead of with your post-tax personal income.

In this example, we'll assume that you're a VAT registered freelancer, that pays the higher rate of income tax (making income personal income over £50,270 a year). We'll also assume you require an Uber to get to work, which costs £2,400 throughout the year (approximately £50 a week).

Here’s how the numbers stack up:

• Cost of travel: £2,400
• VAT saving: Uber charges VAT on their fares, however if you're VAT registered you can reclaim the £400 of VAT you were charged. In other words, the total cost of your uber was £2000 excluding VAT.
• Corporation tax saving: The cost of this travel ex VAT is then eligible for corporation tax relief at up-to 25%. Therefore creating a further corporation tax saving of up-to £500 buying in through the business. In total therefore, the effective cost to the business is only around £1,500 after factoring these tax deductions.

But the savings don't stop here, because you're conserving your personal income (which you'd otherwise be taxed on), we need to factor in the personal tax you save by expensing travel through the company.

• Personal tax saved: If you personally paid for the Ubers, you'd need to earn an £3,019 to leave yourself with £2,000 after paying £1,019 income tax at 33.75% (higher rate dividend tax rate). Therefore by purchasing your travel through the business you entirely avoid the need to incur this additional £1,019 of income tax.

Total tax savings: By purchasing your travel through your business, you save up-to £1919 of tax! This is made of up £400 of VAT savings, up-to £500 of corporation tax saving and £1019 of personal income tax saved. Not bad right?!

This simple illustration underlines how knowing the rules and apply these smart tax savings can really add up. Now, let's take a look at how you can claim these savings...

How to claim these tax savings:

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

1. Buy the travel cost 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 £1,900 of tax, whilst remaining 100% HMRC-compliant.

If you're not with Mighty, you should record this transaction as travel, and speak with your accountant.

Mighty: Your Complete Accounting Partner

Understanding this tax exemption is just one piece of the financial planning puzzle for freelancers and contractors.

Mighty is designed to save you time, money, and stress with amazing software and UK based accountants always on hand to help. Discover the benefits of choosing Mighty for your accounting needs here and get a free 14 day trial - no credit card required!

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