Can you claim tax relief on ULEZ payments?

Local News 25 Oct 2023

Following the expansion of the area in which the ULEZ charge arises, it's perhaps worth considering the tax implications that will apply. Our tax experts breakdown what this means for self-employed sole traders.

As a self employed sole trader, you can claim tax relief for any expenditure that is incurred wholly and exclusively for business purposes.

Where you are travelling by car/van in the Greater London area such that the recently expanded ULEZ charge will be paid, then you will be able to claim relief for the ULEZ charge in the same way that you are able to claim tax relief for say car parking whilst working.

You can claim the £12.50 ULEZ charge against your taxable income, not reduce the tax due by £12.50, and so you would effectively ‘get back’ 20% as a basic rate taxpayer or 40% if higher rate of the ULEZ charge.

For someone travelling in the ULEZ area 5 days a week for 48 weeks a year, the total expenditure on ULEZ would be £3,000 and so a 40% taxpayer would have a reduced tax liability of £1,200 a year; so it’s not insignificant.

When can you claim tax relief?

However, tax relief can only be claimed where the journey was wholly and exclusively for business purposes and so you need to consider the reason for the journey.

  • Where you have no business premises and your home is your base of operations, then any journey to visit a customer will be a business journey and so tax relief can be claimed on the ULEZ charge.
  • Conversely, where you do have business premises within the ULEZ area, then any journey from home to the business premises will be viewed as normal commuting i.e. you are travelling to work not travelling for work. As such, you would not be able to claim tax relief for the ULEZ charge incurred whilst commuting.
  • Where you do commute to business premises but then leave those premises to say visit clients then that journey would be a business journey and so tax relief could be claimed subject to the journey being wholly and exclusively for business purposes.

Keeping records

Under the circumstances and given the nature of the Self Assessment Tax Regime, you should maintain a record of any journey(s) undertaken within the ULEZ area together with the purpose to be able to demonstrate that the journey meets the qualifying requirements. This is particularly important where you only enter the ULEZ area infrequently/unexpectedly or have a permanent place of work within ULEZ, as you may need to be able to justify to HMRC that the expenditure claimed meets the wholly and exclusively test.

In addition to being able to demonstrate the reason for the journey, in the event of an enquiry by HMRC, you will also be asked to provide evidence to show the payment of the ULEZ charge and so payment records should also be maintained.

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