Last updated: 16 October 2026
The question
We have started reimbursing London’s Ultra Low Emission Zone (ULEZ) charges when an employee must pay them while travelling on business for us. Can we reimburse them free of tax?
The short answer
Yes. If the employee pays the ULEZ charge because of a business journey, the charge is a travel expense they incurred in doing their job. You can reimburse it free of income tax and National Insurance, and you do not need to report it on a P11D. Since April 2016, qualifying business expenses that are paid or reimbursed are exempt automatically, so no dispensation is needed.
When ULEZ is business travel
| Journey | Tax-free to reimburse? |
| Driving from the office to visit a client inside the zone | Yes |
| Travelling from home to a temporary workplace inside the zone | Yes |
| Ordinary commuting from home to the normal workplace | No, taxable |
| Private journeys at weekends | No, taxable |
The rules follow the same test as mileage: the journey must be business travel, not ordinary commuting. If you reimburse a charge for a commute, it is earnings and goes through payroll with tax and Class 1 NIC.
What the ULEZ costs
The ULEZ daily charge is £12.50 for vehicles that do not meet the emission standards. It operates across all London boroughs. The Congestion Charge is separate and applies in central London on certain days and times. Both can be reimbursed tax-free for business journeys.
Company cars and vans
If the employee drives a company car or van, the employer often pays the charge directly. Charges paid for business journeys are not a benefit. For private journeys, the treatment can differ, so check how your company vehicle policy deals with them. Newer company cars are usually ULEZ compliant anyway.
Penalty charge notices
Fines for not paying the charge on time are a different matter. If the employer pays a penalty that is the employee’s personal liability, it is a taxable benefit. Penalties are also not deductible for the business.
Example
A surveyor working for a firm in Kent drives her own older diesel car to three client sites in London in a month. She pays £37.50 in ULEZ charges. The firm reimburses her with her mileage claim. The £37.50 is tax-free. The firm can also pay 55p a mile tax-free for the business miles in 2026/27.
Is the charge deductible for the business?
Yes. ULEZ and congestion charges for business journeys are allowable travel costs for companies and sole traders. There is no VAT on ULEZ charges, so nothing to reclaim.
Records to keep
Keep receipts or TfL account statements and a log of the business journey: the date, purpose and destination. This shows the charge relates to business travel if HMRC asks.
Frequently asked questions
Can a sole trader claim ULEZ charges?
Yes, for business journeys, but not if using simplified mileage rates, which cover running costs only. ULEZ charges can be claimed on top of mileage rates.
What about the Dartford Crossing or toll roads?
The same rules apply: tax-free for business journeys.
Can we pay a flat ULEZ allowance?
A flat allowance is taxable unless it matches actual business charges.
Does scrappage support count as income?
Grants for scrapping a non-compliant vehicle are not usually taxable for individuals.
Related: excess mileage payments, hybrid working and commuting tax and motoring expense records.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with employee expenses and benefits. See our payroll services service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
