Car allowances – HMRC’s update on possible employer and employee NIC refunds

28 March 2024

HMRC has updated its guidance on how to make claims for a refund of National Insurance contributions (NIC). This follows the Upper Tribunal decision in HMRC vs Laing O’Rourke and Willmott Dixon, stating that employers may be able to claim NIC on car allowances paid to employees. Employers paying car allowances should immediately review their position to determine whether NIC refunds may be due and if they intend to make a claim. Employees may contact HMRC to discuss.

A reminder on the issue

The issue relates to the difference between the HMRC-approved mileage rate of 45p, and the lower business mileage rates paid by many employers, where employees also receive a car allowance. See our previous article for further details about employer and employee refunds

Claims can be made for refunds going back six tax years. This means that, under the right circumstances, employers paying car allowances can submit claims for both employer’s and employee’s NIC on these allowances. These claims can be made until 5 April 2024 for allowances going back to and including the 2017/18 tax year. 

Given that the end of the 2023/24 tax year is fast approaching, employers should submit a protective claim before 5 April 2024 to secure refund claims for the 2017/18 tax year. 

HMRC guidance on repayments 

HMRC has made it clear that organisations with a similar fact pattern to the Upper Tribunal case (HMRC vs Laing O’Rourke and Willmott Dixon) will be able to correct any historic overpayments. In short, claims should be made on a pay-period-by-pay-period basis via Real Time Information (RTI) or direct to HMRC - explaining why the amendments can’t be made via RTI. For employers within HMRC’s Large Business population, claims should be discussed with their HMRC Customer Compliance Managers. Further details can be found below.

How to claim a refund


When RTI is used to correct claims, they will need to be substantiated on a pay-period-by-pay-period basis with the following evidence:

  • a list of the employees, with their National Insurance numbers included in the claim;
  • evidence of the number of business miles driven by each employee; 
  • the total amount of car allowance payments received by these employees; 
  • details of any other relevant motoring expenditure payments that the employees have received (for example, if they have received mileage payments at less than the HMRC-approved rate); and 
  • the primary and secondary Class 1 NIC that is being reclaimed. 

When employers are unable to amend their RTI returns, they can make written claims. In addition to the above information, they should state:

  • the reference ‘relevant motoring expenditure’; and 
  • the reason the amendment cannot be made through RTI. 


When employees believe they are due a refund, they must contact their employer first. If an employer has made a refund claim, they should repay any overpaid NIC to their employees. If the employer has not applied for a refund, employees will have to provide the following information on a pay-period-by-pay-period basis:

  • evidence of the number of business miles they have driven; 
  • the total amount of car allowance payments they have received; 
  • details of any other relevant motoring expenditure payments they have received (for example, if they have received mileage payments at less than the HMRC-approved rate); 
  • the primary Class 1 NIC that is being reclaimed; and 
  • the reason why their employer is not applying for this refund on their behalf.

For further details please refer to the ‘How to claim a refund’ section for both employers and employees.

How we can help

We can assist you in several ways, including:

  • reviewing policies in light of the Upper Tribunal case, providing an opinion on the validity of any potential claim, and helping in making a protective claim;
  • reviewing business expense payment records and helping to calculate the amount of any potential successful NIC refund; 
  • helping you to manage and communicate repayments to employees;
  • assisting in the preparation and submission of a claim or any required amendments to payroll records; and
  • agreeing on a process moving forward to regularly account for the NIC saving.

For more information, please contact Mark Morton, Susan Ball, Lee Knight or your usual RSM contact.