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Advice on bus pass salary sacrifice schemes
15 Dec 2009
Guidance concerning the efficacy of salary sacrifice schemes used to provide a bus pass to cover an employee’s ordinary commuting was published on 14 December by HM Revenue & Customs.
Specified routes or services
Salary sacrifice schemes have been used in this way so that both the employee and employer obtain the income tax and Class 1/1A NICs advantages of such a scheme. However, for the exemption to apply the employer in question must be providing direct financial support for specified bus routes or specified bus services.
Therefore, where the benefit of free travel is provided by way of an area-wide bus pass, because it is not limited to free travel on the particular service for which support has been provided, the exemption cannot apply.
Payments
A payment that relates to local services in general will not be treated as an exempt subsidy.
If the sum in question is paid to a body other than the bus operator, such as a Transport Executive Authority, then it will be important to ensure both that the money does constitute support for a specific identified bus route or numbered service and that the Authority in question distributes the money to the relevant bus operator.
However, because HMRC is aware that their guidance on subsidised bus travel may not have made clear exactly what constitutes an employer’s exempt financial support they are prepared to accept the following:
1) For employees that had entered into bus pass salary sacrifice arrangements by 18 December 2009, the exemption will be treated as continuing to apply until the end of each such employee’s current bus pass salary sacrifice agreement, provided that the agreement relates to a bus pass that lasts for no more than 12 months.
2) Any renewal after 18 December 2009 of the current bus pass agreement for a new bus pass or to extend the period of the current bus pass will be treated as a new arrangement. It will only be treated as exempt if the conditions of the exemption are fully satisfied and therefore arrangements that rely on area bus passes as opposed to travel on a specific supported bus route will not qualify for exemption.
3) For any employee that had not entered into bus pass salary sacrifice arrangements by 18 December 2009, the exemption will only apply if all conditions are fully satisfied.
P11D and NICs
Bearing in mind the above, if at any time the exemption conditions are not met then, regardless of the employee sacrificing some of their wages to be provided with an area-wide bus pass, the benefit must be returned on forms P11D and the employer pay the Class 1A NICs.
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