28 September 2023
An Upper Tribunal decision has ruled that employers may be able to claim a refund of National Insurance Contributions (NIC) on car allowances paid to employees. Employers paying car allowances should review their position without delay to establish whether NIC refunds could be due.
Following the Upper Tribunal (UT) decision in the case of HMRC vs Laing O’Rourke and Willmott Dixon (see our Tax Voice article here), which HMRC lost and are not appealing, employers paying car allowances in similar circumstances may now be able to claim refunds of Class 1 NIC for earlier years.
The case follows on from the decision in the Total People case from over 10 years ago where the Court of Appeal found in favour of the taxpayer on a similar issue. The recent Laing O’Rourke and Willmott Dixon case is the first test case following the Court of Appeal’s decision in Total People.
What's the issue?
The issue relates to the difference between the HMRC approved mileage rate of 45p, and the lower business mileage rates paid by the employer, whether the car allowances paid by the employer are Relevant Motoring Expenditure (RME), and whether the part of the car allowance amounting to the difference between the approved mileage rate and the mileage rate paid by the employer can be exempt from NIC as a ‘Qualifying Amount’.
Can we make a claim for an NIC refund as an employer?
It will depend on whether there are similar circumstances to the Laing O’Rourke and Willmott Dixon case. Broadly, if the answer to all the following questions is yes, a valid claim may be possible.
- Do you pay car allowances (or similar payments) to employees, broadly in respect of an employee’s use of a vehicle?
- Are those allowances subjected to Class 1 NIC?
- Are all or some of the employees in receipt of a car allowance expected to undertake, and do undertake, business mileage?
- Are those employees reimbursed business mileage at below the approved business mileage rate (currently 45p per mile for NIC purposes) or not reimbursed for business mileage at all?
- Are appropriate mileage records maintained to support business mileage claims (even where no mileage is reimbursed)?
Claims can be made for employer’s and employees’ Class 1 NIC.
Are there any time limits to be aware of?
Yes, there are.
Claims can be made for refunds going back six tax years, meaning employers paying car allowances in the right circumstances can, up until 5 April 2024, submit claims for employer’s and employee’s NIC on car allowances going back to and including the 2017/18 tax year.
There is also an opportunity for some employers to go back even further in certain circumstances.
Are there other considerations?
There is an opportunity to restructure how car allowances are dealt with for NIC purposes going forwards.
Furthermore, employers can use this as an opportunity to make their employees aware that they may also be able to get tax relief on their business mileage payments where the above circumstances apply. Although, for tax purposes, the individuals will only be able to go back four tax years, compared to the six for NICs.
How can RSM help?
RSM can help in several ways. For example, we can:
- review policies in light of the UTT case and provide an opinion on the validity of any potential claim and make a protective claim;
- review business expense payment records and help to calculate the quantum of any potential successful NIC refund;
- help you to manage and communicate repayments to employees;
- assist in the preparation and submission of a claim or any required amendments to payroll records; and
- agree a process going forwards to regularly take account of the NIC saving.
For more information, please contact Mark Morton, Susan Ball, Lee Knight or your usual RSM contact.