How to add ULEZ or Clean Air Zone charges to your invoice (VAT and reverse charge explained)

Category: Finance & Tax • Niche: VAT, ULEZ/CAZ, invoicing, domestic reverse charge, job costing, Xero, QuickBooks

Contents

• Quick answer
• Who this is for
• What counts as CAZ or ULEZ and where it applies
• How to invoice CAZ/ULEZ charges step by step
• Disbursement vs recharge (what HMRC expects)
• Penalties and late fees (PCNs)
• Bookkeeping in Xero and QuickBooks
• Job costing and pricing tips
• Automation play: capture and invoice CAZ in WhatsApp
• Flowchart: the decision in one page
• FAQs

Quick answer

• CAZ/ULEZ daily charges you pay to an authority are usually outside the scope of VAT. But when you pass that cost on to your customer, it’s normally a recharge that follows the VAT of your main supply (or is included in the Domestic Reverse Charge base where DRC applies). See HMRC guidance on recharged costs and disbursements. GOV.UK
• Only treat a CAZ/ULEZ cost as a VAT‑free disbursement if your customer is the liable party and you paid strictly as their agent, meeting all Notice 700 conditions. This is rare. GOV.UK

Who this is for

• Contractors and subcontractors driving into city Clean Air Zones, London ULEZ or Scottish LEZ areas to do works.
• Admins and bookkeepers who need clean invoices, correct VAT and smooth reconciliation in Xero or QuickBooks.

What counts as CAZ or ULEZ and where it applies

• England Clean Air Zones (check and pay): GOV.UK service and guidance here. Cities include Bath, Birmingham, Bradford, Bristol, Portsmouth, Sheffield and Tyneside (Newcastle and Gateshead).
• London ULEZ: daily charge and rules on TfL. Vans that are non‑compliant usually pay £12.50 per day.
• Scotland LEZs (e.g., Glasgow): there’s no daily charge you can pay to enter; non‑compliant entries are enforced by penalties. See Glasgow’s LEZ key info here.

Approximate daily charges for vans/LGVs (as at October 2025; always check official sites before travel):

| City/Zone | Van/LGV (non‑compliant) | | --- | --- | | London ULEZ | £12.50 per day TfL | | Birmingham CAZ | £8 per day Brum Breathes | | Bristol CAZ | £9 per day Bristol City Council | | Sheffield CAZ | £10 per day Sheffield City Council | | Bradford CAZ | £9 per day Bradford Council | | Tyneside (Newcastle/Gateshead) CAZ | £12.50 per day (vans) Newcastle City Council | | Portsmouth CAZ | £0 for private cars, motorcycles and vans (Class B) Cleaner Air Portsmouth | | Glasgow LEZ | Penalty scheme (no daily charge) Glasgow City Council |

Tip: the official checker and payment portal for English CAZs is on GOV.UK. London ULEZ is paid via TfL.

How to invoice CAZ/ULEZ charges step by step

1. Add the cost as a separate line on your invoice

• Description examples:
  • “Clean Air Zone daily charge (Bristol CAZ, date dd/mm/yyyy)”
  • “ULEZ daily charge (London, date dd/mm/yyyy)”

1. Choose the correct VAT treatment

• Standard‑rated work (most repairs/maintenance): charge VAT on the CAZ/ULEZ recharge at 20% along with the rest of the job. HMRC treats your recharge as part of your consideration. GOV.UK
• Zero‑rated work (e.g., qualifying new build): if the CAZ/ULEZ cost is integral/ancillary to that single supply, the recharge follows the zero rate. Use HMRC’s “single vs multiple supplies” approach. HMRC manual
• Domestic Reverse Charge (DRC) applies: include the CAZ/ULEZ amount in the net value that the customer reverse‑charges. Do not add VAT; include the required reverse‑charge wording. GOV.UK

1. Keep evidence

• Keep the authority receipt (often shows no VAT as it’s outside scope).
• Keep a note of date, city and registration.

1. Sample invoice maths (illustrative)

• Standard‑rated job: Labour/materials £1,000 + CAZ £50 = £1,050; VAT 20% = £210; Total £1,260.
• DRC job: Net (incl. CAZ) £5,024; VAT to be accounted for by customer under the domestic reverse charge; Total due £5,024.

Cross-reference: If you handle DRC often, see our guides on wording and workflows:

• Domestic reverse charge VAT for construction: simple checklist, invoice wording and VAT return boxes
• Domestic Reverse Charge on mixed invoices: how to handle labour and materials in Xero and QuickBooks
• ServiceM8 ↔ Xero for UK trades: correct DRC and CIS workflows that actually reconcile

Disbursement vs recharge (what HMRC expects)

• Most CAZ/ULEZ costs are your liability (your van entered), so passing them on is a recharge and VAT follows your supply. GOV.UK
• Disbursement (outside scope on your invoice) only if all Notice 700 conditions are met: your customer is liable, you acted strictly as agent, you pass on the exact amount and show it separately, you didn’t use the goods/services yourself, etc. Notice 700 and HMRC manual

Penalties and late fees (PCNs)

• For congestion/CAZ/ULEZ, penalties are outside scope at the authority level. But when you recharge a penalty to a customer under your contract, HMRC often sees that as additional consideration for your supply, so you should charge VAT on it. Avoid penalties where possible. HMRC manual

Bookkeeping in Xero and QuickBooks

• Original authority payment: post to travel/vehicle expenses; usually outside scope of VAT (no input VAT). Keep the receipt.
• Customer recharge on a standard‑rated job: post as income with 20% VAT. Use your normal sales tax rate for the job.
• Customer recharge on a DRC job: include the CAZ/ULEZ line in the net amount subject to reverse charge; apply your DRC sales tax treatment and required wording.
• If you ever have a qualifying disbursement (rare): show separately, no VAT, do not claim input VAT.

Related helpful reads:

• Pay by bank links for trades: setup with Stripe or GoCardless, fees, refunds and clean Xero/QuickBooks reconciliation
• Offline card payments on site with no signal: Square vs SumUp vs Zettle, limits and risks

Job costing and pricing tips

• Quote stage: if you know a CAZ/ULEZ applies, include it as a specific allowance or a note stating it will be recharged at cost.
• Routing: where possible, plan routes to avoid multiple midnight crossings (charges run midnight to midnight). See official portals: GOV.UK CAZ and TfL ULEZ.
• Variations: if access changes force CAZ entries, treat as a variation and get written agreement via email or WhatsApp.

Automation play: capture and invoice CAZ in WhatsApp

A simple low‑tech workflow your team can run today:

• At arrival: driver sends a WhatsApp template to an admin group: “CAZ/ULEZ – City – reg – date – job number.”
• Admin drops the daily charge into the job in your system, tagged “CAZ/ULEZ.”
• At invoicing: the tagged line pulls through with the correct VAT/DRC treatment.
• Optional: store the authority receipt (PDF) in the job folder for audit.

Flowchart: the decision in one page

FAQs

Can I add ULEZ or CAZ to my customer’s invoice?

Yes. Treat it as a recharge for the job and apply the same VAT treatment as your supply (or include in the reverse charge base). GOV.UK

Do I charge VAT on a ULEZ recharge?

Usually yes for standard‑rated work. The recharge follows your main supply. Zero‑rated work can carry a zero‑rated recharge if it’s part of a single supply. HMRC manual

Can I claim VAT back on ULEZ or CAZ payments I make to the authority?

Typically no, because those charges are outside the scope of VAT. Keep the receipt; if a scheme shows VAT (private operator), treat it under normal rules. HMRC manual

Can I treat ULEZ as a disbursement to keep it VAT‑free on my invoice?

Only if your customer is the liable party and you acted purely as their agent, passing on the exact amount and meeting all Notice 700 conditions. This is uncommon for CAZ/ULEZ. Notice 700

How does the Domestic Reverse Charge affect CAZ/ULEZ recharges?

Don’t add VAT. Include the CAZ/ULEZ cost in the net amount your customer reverse‑charges and include the required wording. GOV.UK

What are the current van charges by city?

Use the official portals. England CAZ checker/payment: GOV.UK. London ULEZ: TfL. City pages for Birmingham, Bristol, Sheffield, Bradford and Tyneside are linked above.

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