18 September 2023

The Upper Tribunal judgement by Laing O’Rourke Services Limited and Willmott Dixon Holdings Limited against HM Revenue and Customs (HMRC) has clarified the law on car allowance payments and national insurance contributions (NIC) relief.

HMRC has since declared it will not be appealing the judgement and this therefore opens the floodgates for other employers to submit their claims based on the clarifications provided. Many payroll departments may be wondering what that means for them, and more importantly, are they leaving valuable NIC payments on the table that they could be retaining?

Simply put:

The car allowance is categorised as relevant motoring expenditure (RME) as it is a payment in respect of the use of a personal vehicle. Where an employee is reimbursed for mileage at below the Approved Mileage Allowance Payment (AMAP) the remainder or difference must be offset against other RMEs, such as the car allowance payment, reducing the NIC due for both employee and employer.

As an example, if you pay 10p per mile and an employee does 200 business miles, then a 35p per mile difference can be offset against a car allowance payment, a total of £70. Practically, going forward, this means that the car allowance payment must be split into two lines on the payslip. The first £70 is taxable but NIC free. The balance of the car allowance is taxable and NICable.

Indeed the law goes further. Say your company processes mean that the first 10 miles of any business journey are not reimbursable then that equates to a further £4.50 (10 miles x 45p) of the car allowance that effectively escapes NIC.

As NIC is applied on an earnings period basis, rather than yearly, relief will be available on the full 45p per mile in each pay period, not reducing to 25p per mile after 10,000 business miles as it would with the tax relief.

Retrospective claims can be made for the current tax year and the six previous tax years. If you do wish to claim a refund for prior years, do ensure you have all the relevant historic data to ensure you claim is accurate and to answer any follow up queries HMRC may have.

John Messore, the adviser behind both taxpayers, who also instructed Willmott Dixon’s KC, said  “My interest in this matter started 10 years ago when I sat through the Total People Court of Appeal case, where I saw the opportunity for all companies to save NIC on their car allowances. I am delighted we finally won and my interpretation of the regulations was upheld by the Upper Tribunal. For over 10 years I have been encouraging employers, and individuals, to put in retrospective claims and I am pleased that we finally won and people are starting to finally get their NIC refunds. I am aware of a number of companies and employees who have already been repaid by HMRC.”

Keep an eye out for an article written by John in the November edition of the magazine, where he will dive deeper into the case and what you need to be concerned with.

The CIPP recommend liaising with a specialist in this area if you need further guidance on backdating claims.

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