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Fringe benefits provided to employees are usually taxable – but there are exceptions, and one of them came under detailed scrutiny in a case involving a free bus pass issued to a local authority worker.
The council had in the past operated a scheme whereby its employees were given the opportunity to sacrifice part of their salaries in return for a free pass on local bus services. That arrangement was accepted by HM Revenue and Customs (HMRC) but was subsequently abandoned following a change in the law.
With a view to establishing the correct legal position, the council subsequently issued a bus pass, worth £427, to one of its employees. HMRC levied Income Tax on the worker and required the council to make National Insurance contributions. The council challenged the decision before the First-tier Tribunal (FTT).
It was submitted that, by paying for the bus pass, the council was providing financial support to a local, privatised, bus company and that the tax exemption in respect of public transport road services, contained within Section 243 of the Income Tax (Earnings and Pensions) Act 2003, therefore applied.
Rejecting the appeal, however, the FTT found that provision of the bus pass was a taxable benefit in kind. Had the council’s arguments been correct, all bus passes provided by an employer to an employee would be tax free so long as they were only valid on local services. Had Parliament intended such a result, it would have said so in terms.