TRAVEL EXPENSES - 10.09.2020

Taxis to work - the tax and NI implications

The government is urging businesses to get their staff back to their normal places of work. But some staff will be anxious about using public transport. What might be the tax and NI considerations if you pay for taxis?

Taxis for the anxious?

Whilst you know that some employees are very keen to get back into the workplace, others will be much more cautious about the risks of travelling on public transport, particularly if they have underlying health conditions. You may therefore offer to pay for the cost of taxis to get people to work and back.

Meeting the cost of an employee’s travel to a permanent workplace is a taxable and NIable expense as this is “ordinary commuting” and puts them in a position to carry out their job, as opposed to business travel which is tax and NI free as it is incurred in the performance of their duties.

Who pays?

If you have to provide this solution to get a key worker back to the office, how do you handle this from a payroll perspective? The first decision is who is going to pick up the cost? If the employee is suffering the tax and NI, the way the taxi is paid for dictates the treatment.


If the employee is reimbursed, the expenses can be reported on the P11D in section N for tax purposes but needs to go through the payroll at the point of reimbursement for NI, as section N is not a Class 1A P11D section; it presupposes that Class 1 NI has already been paid through the payroll.

Pro advice. If this is the agreement with the employee make sure they know that they will be paying tax and NI, and when, and that payroll is given the figures at the right time to inflate NIable pay by the notional amount.

Employer organises

If you have arranged a taxi, perhaps via an account with a local business, then this will be reported in section M of the P11D but on the Class 1A line because the contract is between the employee and the taxi company. So this time the employee is only going to be paying tax but the employer will suffer the Class 1A cost.

Direct payment to taxi firm

The final option might be that the employee arranges the taxi and brings in a bill that the employer then settles directly with the taxi company. This time it’s section B of the P11D as this is what’s known as a “pecuniary liability”, because the employer has settled a bill for a cost that was incurred by the employee, i.e. has settled an employee’s debt. Section B of the P11D is also one that requires the NI to go through the payroll as it is a Class 1 liability.

Pro advice. It may be that a well-meaning line manager or somebody in HR has offered the taxi option without realising the tax and NI implications, so make sure you communicate the impact across the business before people make decisions.


If the business doesn’t want to pass the cost on to the employee, HMRC has agreed that you can include such costs in a PAYE settlement agreement (PSA). Including such costs in a PSA will be expensive as you must pay tax and Class IB NI on a grossed-up basis, so the face value of the taxi fare increases considerably as an employer cost.

Meeting the cost of an employee’s travel to a permanent workplace is a taxable and NIable expense as this is “ordinary commuting”. If the employee arranges the taxi and brings in a bill that you then settle directly with the taxi company, it’s reported on section B of the P11D.

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