Congestion charge tax 'muddle'

Congestion charge tax 'muddle'

By Sarah Toyne
BBC News Online personal finance reporter

Mixed messages about London's new congestion charge have not only been confined to politicians.

Earlier in the week a leading firm of accountants pointed out that the Inland Revenue's own website had got it wrong on the tax implications of the congestion charge.

This was after numerous articles and commentaries had been written outlining the revenue's position.

The offending page has now been removed and a new one, outlining the correct position was loaded up on Friday.

So, what's going on?

Contrary to the website's original advice, employees driving company cars or vans whose employers pay the charge for them will not incur tax.

This is because in these circumstances the charge is not classed as a benefit on the employee, and therefore liable to tax.

This is good news for these people, as it means they won't be coughing-up about £480 in tax a year, if a higher-rate taxpayer making 200 days worth of trips into central London, or about £220 for people on the basic rate.

It is still bad news, however, for those who have a company car but their employer refuses to pay the charge.

They can not claim it against their tax liability.

Bad news

It is also tough luck for people who have their congestion charge paid by their employer, but drive to work in their own car.

They will be taxed on the benefit.

This means if they are a higher rate tax payer they will be about £480 a year worse off.

If a basic-rate taxpayer, they will incur about a £220 bill from the taxman.

It is still cheaper than paying the full charge, though.

Self-employed people who pay the charge can class the congestion charge as an additional business expense, but not for journeys with a "material private purpose", including home to work travel.

"For someone who is self-employed the general tax rule is that travelling expenses are treated in the same way as any other business expense," the revenue says.

"This means that where someone who is self-employed and has incurred the congestion charge as part of their normal business travelling expenses it will generally be tax deductible.

"Congestion charges incurred for personal journeys, including home to work travel, will not."