The rise in penalty charge notices linked to the new LEZ has seen demand surge for tax-efficient salary sacrifice schemes that allow employees to purchase LEZ compliant electric cars.

Starting at £60 and rising to a substantial £960 for buses and HGVs, these penalties are catching out almost 150 vehicles every day. Mark Pryce, a business tax partner with Azets and a specialist in employee benefits, said that demand for salary sacrifice schemes had soared since after just one month of the new LEZ being launched.

He said: “Salary sacrifice schemes are a highly tax-efficient and cost-effective way of providing employees with access to electric cars that might otherwise be far more expensive purchase or lease.

“E cars are LEZ-compliant so also provide employees with the freedom to commute and travel on business within a LEZ area, which is a key attraction for businesses that rely on their staff travelling into the city centre.”

For those drivers that continue to incur penalty charges, Mr Pryce warned against making claims on their expenses: “Expense claims for LEZ penalty charges will be considered by HMRC as additional taxable income.

“The cost of driving to and from the workplace is a personal expense and any payment of that cost, including penalty charges, is a taxable benefit. The employee would therefore be liable for tax at their marginal rate plus additional national insurance costs.”

“LEZ penalties are also not a valid deduction for corporation tax, so the cost implications of paying the penalties is significant for both the employee and the employer. We would encourage businesses to ensure that they have clear guidelines and to be alert to any expenses claims for LEZ penalties.

“Employees can be reimbursed for genuine business travel but the rollout of the LEZ zones across Scotland further emphasises the need for businesses to think very carefully about the distinction between business and private travel.”

Mr Pryce urged businesses concerned about the impact of LEZ and interested in salary sacrifice schemes to seek professional advice: “It is vital that employers first seek professional advice on employee travel matters in relation to the new LEZ and how it is impacting on employee expenses, taxes and employee travel patterns.

“Salary sacrifice schemes also need careful consideration, but the demand triggered by the penalty charges suggests that many more businesses will go down this route.”

Azets also highlighted increased HMRC scrutiny on motoring costs with tax geared penalties on errors being found in a large proportion of cases, leading to an increased risk of tax penalties on top of LEZ penalties.