EXPLANATORY NOTE

1. This clause exempts, from 6 April 1999, the benefit to an employee of a free or low cost works bus service provided by the employer, or of a subsidy paid by the employer to a local public bus service, to bring employees to and from work.

2. The Government’s White Paper on the future of transport, ‘A New Deal for Transport’, noted that green transport plans can make a major contribution to easing road traffic congestion. The exemptions brought in by this clause - together with the exemptions in clauses 46 and 47 - will encourage employers to adopt green transport plans and so assist employees to travel to work without using their own cars.

3. Employers will also benefit from the reduced compliance burden of no longer having to calculate and report these benefits to the Inland Revenue on behalf of their employees.

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4. Subsection (1) brings in new Sections 197AA and 197AB of the Taxes Act which contain the details of the new exemptions.

5. New Section 197AA(1) and (2) remove the employee benefits charge for employees’ qualifying journeys on a large works bus service provided by the employer.

6. New Section 197AA(3) defines a `large bus` as a vehicle with a seating capacity of 17 or more, and a ‘qualifying journey’ as a

journey to or from the employees’ workplace to carry out the duties of the employment.

7. New Section 197AA(4) and (5) provide that the exemption is subject to the conditions that the bus service is made generally available to employees and used by them mainly for their commuting journey.

8. New Section 197AA(6) provides that where access to the bus service is by means of a ticket or other voucher, the tax charge on vouchers (Section 141 of the Taxes Act) shall not apply.

9. New Section 197AA(7) defines ‘employment’ and ‘workplace’; and Subsection 8 defines how `seating capacity` is to be determined.

10. New Section 197AB(1) provides exemption for financial or other support provided by an employer to a public transport bus service for employees for their commuting journey.

11. New Section 197AB(2) defines public transport bus service and journeys which qualify for relief.

12. New Section 197AB(3) makes the exemption subject to the conditions that the support must be provided directly to the operator of the service, that the terms of the service must not be more favourable to employees than to other passengers, and that the service must be generally available to employees.

13. New Section 197AB(4) provides that the exemption is due only if the employees use the service mainly for their commuting journey.

14. New Section 197AB(5) defines ‘employment’ and ‘workplace’; and Subsection 6 defines how `seating capacity` is to be determined.

15. Subsection 2 provides that the exemptions have effect from 6 April 1999.

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16. Employees are generally taxable on benefits, including travel benefits, which they receive by reason of their employment - although some benefits, for example, beneficial loans of £5,000 or less (for example a loan to buy a season ticket), are already exempt from tax.

17. Generally therefore, where an employer lays on a works bus, or provides a subsidy to a local bus service - for example to enable the service to continue or to make a stop near the employers workplace - in order to bring the employees to and from work, a tax charge can arise on the employees who use the travel facility. Each employee is taxable on a proportion of the cost to the employer of providing the service or the subsidy.

18. In the context of the Government’s concern to encourage `greener` forms of transport and reduce non-essential car travel, the White Paper on the Future of Transport, published last October, said that the Government would be looking at the impact of tax on the adoption by employers of green transport plans, and whether tax changes might be appropriate to assist such plans.

19. Employers and environmental bodies have been concerned about the potential discouragement to adopting green transport which the existence of an employee benefits tax charge on employer-provided or subsidised bus services can involve.

20. In addition, the work of apportioning the taxable benefit and making returns of benefit to the Inland Revenue for each employee can be administratively complicated and burdensome for employers.