HMRC facing National Insurance contributions refund claims on car allowances
25 July 2023
The recent Upper-tier Tribunal (“UTT”) ruling in the case of HMRC vs Laing O’Rourke and Willmott Dixon is a hugely important ruling relating to whether car allowances are fully liable to National Insurance contributions (NICs).
In the case, both employers operated arrangements which allowed employees to choose between taking a car allowance or a company car. To receive the car allowance, employees had to ensure a suitable car was available for business use, but there were no directions on how the allowance should be spent by employees.
Both employers contended that the car allowances were relevant motoring expenditure (RME) for NIC purposes and that any ‘qualifying amounts’ of RME, were not liable to NIC. The qualifying amounts being 45p per business mile less any business mileage separately paid.
Both employers also sought significant refunds of NIC from HMRC with Laing O’Rourke, for example, seeking a refund of NIC totalling c£2.2m. HMRC disagreed, so both employers appealed, and the case was eventually heard in the UTT.
In its judgement on 10 July 2023, the UTT agreed with both taxpayers that their car allowances were RME and that the qualifying amounts of RME were not liable to NIC. The crucial point the UTT highlighted is that RME has a much wider definition than HMRC had contended and included car allowances paid for expected or potential use of a car, or for making a car available for use. The UTT also found that the grade of the employee, and how the car allowance is spent by the employee, are irrelevant for determining whether a payment is RME.
The UTT’s decision is currently setting a binding precedent. It means that any employer paying car allowances in comparable circumstances to those in this case, where employees in receipt of the allowance are using their cars for business, could potentially seek refunds of NIC from HMRC, potentially going back six years.
Broadly HMRC has 30 days to appeal this decision. Should HMRC decide to do so, it could take at least one or two years for the case to be reheard in the Court of Appeal. However as this follows the landmark Cheshire Employer and Skills Development case in the Court of Appeal more than 10 years ago, HMRC may just decide to let it stand which could result in an enormous number of NIC refund claims from employers.
In the case, both employers operated arrangements which allowed employees to choose between taking a car allowance or a company car. To receive the car allowance, employees had to ensure a suitable car was available for business use, but there were no directions on how the allowance should be spent by employees.
Both employers contended that the car allowances were relevant motoring expenditure (RME) for NIC purposes and that any ‘qualifying amounts’ of RME, were not liable to NIC. The qualifying amounts being 45p per business mile less any business mileage separately paid.
Both employers also sought significant refunds of NIC from HMRC with Laing O’Rourke, for example, seeking a refund of NIC totalling c£2.2m. HMRC disagreed, so both employers appealed, and the case was eventually heard in the UTT.
In its judgement on 10 July 2023, the UTT agreed with both taxpayers that their car allowances were RME and that the qualifying amounts of RME were not liable to NIC. The crucial point the UTT highlighted is that RME has a much wider definition than HMRC had contended and included car allowances paid for expected or potential use of a car, or for making a car available for use. The UTT also found that the grade of the employee, and how the car allowance is spent by the employee, are irrelevant for determining whether a payment is RME.
The UTT’s decision is currently setting a binding precedent. It means that any employer paying car allowances in comparable circumstances to those in this case, where employees in receipt of the allowance are using their cars for business, could potentially seek refunds of NIC from HMRC, potentially going back six years.
Broadly HMRC has 30 days to appeal this decision. Should HMRC decide to do so, it could take at least one or two years for the case to be reheard in the Court of Appeal. However as this follows the landmark Cheshire Employer and Skills Development case in the Court of Appeal more than 10 years ago, HMRC may just decide to let it stand which could result in an enormous number of NIC refund claims from employers.
