Save Tax By Expensing Workplace Parking Through Your Business.

A Complete Guide To Expensing Parking For UK Company Directors

Written by 
James Morgenstern
Updated on
February 19, 2024

Are you a freelancer, contractor, or running your own limited company in the UK? Have you ever wondered if parking at or near work is tax deductible?

In our guide, we will explore a frequently missed tax advantage that could simplify your life and possibly reduce your tax bill.

Summary

As a limited company director, using the business to pay for workplace parking can easily save you £500 a year in tax!

This is because employer-provided parking near the workplace is exempt from being a taxable benefit, as per HMRC guidelines defining "near" as within a reasonable walking distance.

This exemption covers all related employer expenses except for parking fines and is applicable regardless of the parking's usage frequency, including for leisure or by family members, as long as it's mainly for employee use. Let's jump in to the rule and breakdown how it all works.

Understanding the Tax Exemption on Parking Spaces

When it comes to company-provided perks, the taxman is usually keen to have his share. However, there's good news for directors and employees regarding workplace parking.

There is no tax payable if a parking space is provided to a director or employee at or near their place of work.

That's right, the cost of parking is tax deductible against corporation tax with no benefit in kind charges due for the recipient, provided certain conditions are met.

What are the rules for workplace parking?

The exemption doesn't just cover parking at your actual workplace, such as a designated car park attached to your office. It also generously extends to parking spaces 'near' your place of employment.

Now, you might ask, "What exactly does 'near' mean?" Well, the law doesn't precisely define it, but HMRC applies this rule with a reasonable amount of flexibility.

They consider parking facilities to be within a "reasonable distance," even if there’s another parking lot closer to your work. This means you don’t have to worry about being penalized for using a slightly farther away parking space.

Does it matter who pays?

Whether the company pays upfront for the parking costs or reimburses you, it makes no difference — the tax exemption applies either way. In reality, if you run your own company it's easier to use the company card to pay for parking.

Private Use—A Non-Issue for Tax

Another perk worth noting is that the legislation remains silent on whether the exemption stands if you use the parking space for non-work activities outside working hours. For example, if you're out for a weekend shopping spree, and you utilise the same parking space, there's no looming benefit in kind charge waiting to rain on your parade.

How much are the tax savings?

To understand the tax savings of paying for parking through your company, let's run through an example assuming you pay £800 a year for parking at a rate of £8 a day and park 100 times per year

  • At a corporation tax of 20%, you will save £160 of corporation tax (0.2 * £800 = £160)
  • In addition, because the company is bearing the cost you will personally save approximately £408 of tax.
  • This is because if you’re a higher rate tax payer, you'd need to earn £1208 of dividends to be left with £800 after paying £408 of tax on those dividends at 33.75%
  • In total therefore, the corporation tax and income tax savings amount to a over £568!

Consequently, if driving and parking close to your office is necessary, it is remarkably tax-efficient to manage this through your business instead of paying for it out of your own pocket.

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. Pay for the parking 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 £568 of tax 100% legally!

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

Mighty: Your Complete Accounting Solution

So, how can you ensure that all these nuances are managed correctly without spending hours on accounting details?

Mighty is built to save freelancers and contractors money, time and tax. It's fully HMRC compliant, incredibly easy to use and takes care of all your taxes for you. Visit Mighty Accounting for a full free 30 trial - no credit card required!

Final Thoughts

As a freelancer, contractor, or company director, understanding and utilising every available tax benefit is crucial. Workplace parking, which may seem trivial, reveals yet another area where informed decision-making can lead to tangible savings. Remember, it’s not just where you work, but also where you park that matters.

If accounting tasks are not what you want to fill your day with, consider Mighty for a streamlined approach. With all the intricacies of tax benefits and financial management handled smoothly, you can focus on the work that truly matters.

Have any questions or want to get started? Visit us at Mighty Accounting and learn how we can make your financial management efficient and worry-free.

Content:
- Tax Exemption on Parking Spaces - Location Matters, Flexibility - Cost of Parking - Private Use Non-Issue - Mighty: Your Accounting Partner - Final Thoughts
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