Policy paper

Tax exemption for travel expenses of members of local authorities

Published 8 July 2015

Who is likely to be affected

Councillors who are elected or appointed to serve as members of a local authority.

General description of the measure

The measure will introduce a new exemption from income tax for travel expenses paid to councillors by their local authority. There will be a corresponding National Insurance contributions (NICs) disregard.

Policy Objective

Councillors perform an important constitutional role in representing communities across the UK. They carry out their duties in their own time, often in addition to other professional and personal commitments, and many receive no payment other than allowances in recognition of the time and expenses they incur. This measure will help ensure that individuals are not discouraged from undertaking a role as a councillor by the tax treatment of travel expenses paid by their local authority.

Background to the measure

On 22 July 2014 the government announced its intention to introduce a tax exemption and matching NICs disregard for councillors’ travel expenses.

Following the announcement, informal discussions were held with representative bodies for councils and councillors. A further consultation was held in early 2015 on draft regulations that set out further details of the exemption.

This tax information and impact note (TIIN) updates and replaces the TIIN published on 10 December 2014.

Detailed proposal

Operative date

This measure will have effect on payments made on and after 6 April 2016.

Current law

Travel expenses paid to councillors are generally subject to the rules that govern the tax treatment of the travel expenses of all employees and office-holders.

Payments by employers of travel expenses for home to office travel are generally chargeable to income tax as a payment of earnings under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and create a liability for Class 1 NICs as earnings from the employment as provided for in section 3 of the Social Security (Contributions) and Benefits Act 1992 (SSCBA).

Sections 229 to 236 ITEPA set out the current rules for passenger payments and the approved amounts for such payments, Mileage Allowance Payments (MAPs), Approved Mileage Allowance Payments (AMAPs) and Mileage Allowance Relief (MAR) for employees who use their own vehicle for business travel.

Sections 337 to 338 ITEPA provide for deduction from earnings for costs necessarily incurred on business travel, specifically on travelling in the performance of the duties of the employment and travelling for the employee’s necessary attendance at a temporary workplace.

Subsection 338(2) ITEPA specifically excludes the expenses of ordinary commuting, defined as travel between an employee’s home and permanent workplace, from qualifying as business travel.

Sections 6 to 9 SSCBA impose a Class 1 NICs liability on employees and employers in respect of payments of earnings. Regulation 25 of, and Schedule 3 to, the Social Security (Contributions) Regulations 2001 (SI2001/1004) (SSCR) provide for specified payments to be disregarded in the calculation of earnings for these purposes.

Proposed revisions

Legislation will be introduced in Summer Finance Bill 2015 to amend Part 4 of ITEPA to exempt payment of councillors’ travel expenses from a charge to income tax. This will include expenses paid for journeys between the councillor’s home and permanent workplace, except where the councillor’s home is more than 20 miles from the boundary of the local authority area.

The current rules for MAPs, AMAPs and MAR will continue to apply to business travel undertaken by a councillor in their own vehicle. Journeys between a councillor’s home and permanent workplace, where their home is either in the local authority area or within 20 miles of the boundary of the area, will be treated as business travel when calculating MAPs and applying the AMAPs limits, but will not be treated as business travel for calculating MAR.

The tax exemption will also apply to qualifying passenger payments up to the approved amount, but only where the passenger is also a member of the local authority.

The exemption will only apply where payments are made by a local authority under certain provisions. Treasury Regulations will set out relevant definitions and the provisions that payments must be made under.

Amendment will also be made to the SSCR to give effect to these provisions for Class 1 NICs purposes.

Summary of impacts

Exchequer impact (£m)	2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
		negligible	negligible	negligible	negligible	negligible
	This measure is expected to have a negligible impact on the Exchequer.
Economic impact	The measure is not expected to have any significant economic impacts.
Impact on individuals, households and families	This measure will only apply to elected or appointed councillors. It will affect those who currently receive taxable home to work travel expenses. The impact on affected individuals will be limited to the tax and National Insurance currently paid on such expenses.
Equalities impacts	HM Revenue and Customs (HMRC) does not hold any data on the protected characteristics of councillors. However, this measure will apply equally to all councillors and will not impact other groups.
Impact on business including civil society organisations	This measure is expected to have no impact on businesses or civil society organisations. There are likely to be implementation costs for local authorities due to the need to change some internal processes, but there will be ongoing administrative savings once implementation is complete.
Operational impact (£m) (HMRC or other)	The additional costs for HMRC in implementing these changes are expected to be negligible.
Other impacts	Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communication with the affected group.

Further advice

If you have any questions about this change, please contact the Employment Income Policy Team by email: employmentincome.policy@hmrc.gsi.gov.uk.