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Free taxis home for late-working lawyers could be under threat from new guidance published by HMRC.
The guidance could expose firms paying for employees' taxi journeys to significant tax charges, because taxi journeys could be classed as an income taxable "benefit in kind".
One magic circle tax partner said: "To be honest, the new guidance has come out and everyone's struggling with it."
It is understood that for large firms the hit could run into seven-figure sums, although The Lawyer has learned that at least one magic circle firm already pays taxes on all of its taxi journeys.
"I think this is all going to cause employers a huge headache," agreed Inez Anderson, director in corporate tax at auditors Smith Williamson.
The financial ramifications of the stringent new rules could be significant, with £66.67 potentially being payable in tax for every £100 of taxi journeys taken by a higher rate tax payer employee.
The rules are complex and will prove difficult to administer in practice.
For a taxi journey to be tax exempt, the employer has to satisfy several criteria, including establishing that the employee is working after 9pm and "later than usual", working late "occurs irregularly", and that public transport has ceased or that it would be unreasonable to expect the employee to use public transport.
For every journey when public transport is still available, employers are effectively being asked to consider the safety element and note why it was considered necessary to provide a taxi, explained Anderson.
In short, most City lawyers' late-night taxi journeys would appear to fall on the wrong side of the tax fence.
"Every employer is either going to have to come up with a system to deal with this or accept that the provision of taxis will give rise to a tax liability," said Anderson.
Guidance EIM21831 on section 248 of the 2003 Income Tax (Earnings and Pensions) Act was released by HMRC this week.
It is the result of HMRC carrying out in-depth reviews of large employers' late-night taxi policies and how these are administered in practice.