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

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

Employers

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:

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

Employees

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:

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:

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

authors:lee-knight,authors:susan-ball,authors:mark-morton