16 November 2023

In issue 114 of HMRC’s Agent Update, there was an update on the NICs treatment of RME, following the outcome of a recent Upper Tribunal decision. 

This is a subject that was discussed in the ‘hot topic’ article seen in the November issue of Professional magazine.

Where employees drive their own vehicle for work, relief from tax and a disregard from class 1 NICs can be applied to any business miles which have been driven. To qualify for the NICs disregard, the use of the vehicle must be classed as RME.

In the case of Wilmott Dixon and Laing O’Rourke (which HMRC lost), it was determined that the type of payments which can be deemed as coming under the definition of RME is much broader than previously proposed by HMRC. It was found that it’s not just payments which relate to the actual use of the car but also those associated with the potential use of the car too. This has a subsequent impact on those in receipt of fixed sum car allowances, which centre on anticipated use of a qualifying vehicle. These types of payment could potentially benefit from a higher amount of disregard as the amounts classed as RME could be higher.

We now see the following situation arising – where NICs have been applied to car allowance payments for previous periods, where they shouldn’t have been, a refund of those overpaid NICs can be claimed. All existing rules apply in terms of making a successful claim, and evidence must be provided to demonstrated quantified and evidenced business miles driven. Please note, there’s no disregard available on payments made within the definition of RME if salary has been sacrificed from an individual’s pay.

HMRC guidance on this topic is currently being updated.

Claiming a refund

Employers

Where there are similar fact patterns to the Upper Tribunal cases, businesses can correct any overpayments. The following evidence (on a pay period-by-period basis) will be required where real time information (RTI) is used to facilitate this:

  • a list of impacted employees, along with their NI numbers
  • evidence to demonstrate business miles undertaken by each employee
  • car allowance payments amounts received by impacted employees
  • information regarding any other RME payments the employees have received, e.g., any mileage payments received at less than the HMRC approved rate
  • information on both the primary and secondary class 1 NICs being reclaimed.

This information must be retained, as the RTI returns are subject to enquiry.

Employers who come under HMRC’s large business population must make their claims through their dedicated customer compliance managers.

If an employer cannot amend their RTI returns, they have the option of submitting a written claim. In addition to the evidence above, they will be required to provide reference of the RME and the reasons as to why the amendments can’t be made through the RTI process.

Employees

If an employee believes they are due a refund, they must liaise with their employer in the first instance. If the employer has claimed, they will repay any overpaid NICs due to the employee.

If the employer hasn’t applied for a refund, employees need to provide the following (on a pay period-by-period basis):

  • evidence of the number of business miles
  • amount of car allowance payments they have received
  • information regarding any other RME payments they have received, e.g., any mileage payments received at less than the HMRC approved rate
  • the primary class 1 NICs being reclaimed
  • the reason their employer isn’t applying for this refund on their behalf.

HMRC will then follow the usual process for claiming a NICs refund.

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