Time to act on National Insurance reclaims for car allowances

Our August 2023 Tax Voice article summarised the basis for claiming a refund of National Insurance contributions (NICs) in certain circumstances, following the Upper Tribunal (UT) ruling in the jointly heard appeals of Laing O’Rourke v HMRC and HMRC v Willmott Dixon. In the intervening period, there has been plenty of commentary on how to evaluate a potential claim and HMRC has even helpfully set out its expectations on records and actions it expects to support and enable a successful claim - see HMRC’s December 2023 Employer Bulletin for more details.

Background

Both these cases involved companies that operated arrangements allowing employees to choose between taking a car allowance or a company car. There was no direction as to how the allowance should be spent by eligible employees, and the employees were allowed to claim business mileage at rates lower than the HMRC approved rates.

The companies argued that the car allowances were relevant motoring expenditure (RME) and that the part of the RME which was a qualifying amount (QA) was not liable to NICs. The QA is calculated by multiplying the approved mileage rate by the employee’s total business mileage, less any business mileage expenses separately paid to them.

Both companies sought a refund of NICs on the car allowance payments. HMRC contended that repayments were not due but ultimately the UT agreed with the companies.

What should employers do now?

The clock is quickly running down on any NICs reclaims that employers may wish to make for the 2017-18 tax year. For those able to make their claim by 5 April 2024, 2017-18 will still be ‘in time’. For those unable to gather all relevant information and prepare their claim by that deadline, all is not lost.  Contacting HMRC and making a ‘protective claim’ for 2017-18 prior to the deadline should enable the submission of the actual claim and supporting details at a later date.

There is no downside to making such a protective claim, and employers are advised to take professional advice with a view to identifying their eligibility and protecting their position in readiness for a formal claim to be compiled later, even if, in the end, no claim for 2017-18 is found to be due or financially worthwhile.

For more information, please get in touch with Mark Morton, or your usual RSM contact.