HMRC win appeal on the treatment of car allowance payments

09 August 2021

HMRC was successful in an appeal where it was confirmed that Class 1 National Insurance (NICs) were correctly applied on Car Allowance payments to employees.

Employer, Laing O’Rourke Services paid employees under a car allowance scheme between 2004/5 and 2017/18 where employees were entitled to choose whether to receive a car allowance payment instead of a company car.  The only requirement on the employee was that they had a car available to use that met specified requirements.  Access to the scheme was not determined on the level of business travel but was solely on the basis of the employees’ grade within the business.

The car allowance was found to be earnings.  The payments were not business expenses and did not reflect a reimbursement, actual or estimated cost to the employees.  The court explored whether the payments could be deemed “relevant motoring expenditure” providing Class 1 NIC relief however this argument failed because:
1.    The same amount was paid regardless of the amount of expenses incurred by the employee 
2.    Ongoing travel was not monitored and did not result in removal from the scheme
3.    The amount paid was determined solely by job grade
4.    The same payment is made to a person who drives no business miles vs a person who drives more than 20,000 business miles
5.    Higher graded employees driving no business miles are paid more than lower graded employees driving high business miles

The appeal was dismissed and HMRC was correct to decline the £2.2 million NIC refund.

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