A proposed climate change levy on air miles begs the question: who actually owns them?
Frequent flyer or air miles have become common currency for business travellers, particularly those flying frequently around the world. While terms and conditions for these schemes seek to make clear that air miles have no monetary value and are not exchangeable for cash, air miles can accumulate to be valuable assets which can be exchanged for air travel that otherwise would be expensive. There is no doubt that air miles encourage both airline loyalty and additional travel, increasing the traveller’s carbon footprint.
HM Government has commissioned a report by its Committee on Climate Change and a study has been produced by Imperial College London regarding air miles schemes generally and the long-haul travel behaviour these tend to encourage. While the study proposes a ban on certain types of frequent flyer schemes, it also has proposed a levy on schemes to discourage excessive flying by this group of frequent travellers.
The study proposes a ban on certain types of frequent flyer schemes
In some eyes, aviation has enjoyed very generous tax treatment, despite frequent flyer schemes being used largely by a small wealthy set of travellers. The levy could curb some demands of this group and possibly encourage short-haul flights in preference to those over longer distances. The mantra of the report appears to be “those who pollute the most could easily afford to pay more”. Any ban could potentially affect millions of passengers, remove what is a material benefit to some employment, and devalue points already earned.
The 2019 study on frequent flyer schemes does not consider the current status of who owns the air miles and whether they are taxable as a benefit in kind, and is more concerned with climate change issues. The benefit of “earning” air miles does not mean they are taxable in the hands of the employee unless they are “provided by reason of the employment” even if the employee only has the opportunity to earn the air miles because they are going on a business travel trip for which the costs are met or reimbursed by the employer. This is only on the basis that the air miles are awarded to the employee from the outset. There is a tax charge on earning air miles if they are provided by reason of the employee’s employment. This is where the employment is a necessary condition to the receipt of the air miles, for example where the employer distributes air miles as part of an incentive scheme.
HMRC’s tax rules on air miles are set out in its Employment Income Manual EIM21618. Provided the air miles belong to the employee, rather than employer, they are not considered taxable by reason of their employment. This does not arise when the air miles are awarded simply because the employee goes on a business journey paid for by the employer.
However, taxing air miles for climate change reasons (rather than a separate levy) is an easy step forward to meet this political pressure.
The real value in the pocket for these frequent flyer schemes can be seen when they are treated as assets, for example in a divorce case. Air miles earned during a marriage are considered matrimonial assets and the property of both spouses which can be divided in a divorce. Similarly, the availability of air miles can be used to increase disposable income where one spouse is a resident overseas or claims the full cost of non-business but essential travel.