Employment Tax update: Potential national insurance contribution (NIC) reclaim on employee car allowances

Two successful taxpayer challenges in July 2023 at the Upper Tier Tribunal (UTT) could result in some significant tax and national insurance contribution (NIC) savings for employers who offer a car allowance in lieu of a company car.

The recent cases of Laing O’Rourke and Willmott Dixon vs HMRC, both involved employers with car schemes that let qualifying employees choose between a company car and a cash allowance. Employees who chose the cash allowance were required to have a private vehicle available which was suitable for business use, but there was no contractual requirement to spend the allowance on motoring expenses. The employees must have incurred business mileage.

Both employers treated these payments to employees as earnings, and subjected them to PAYE and NIC deductions. However Laing and Willmott Dixon also maintained that the car allowance payments represented ‘relevant motoring expenditure’ (RME). If the payments represent RME then a qualifying amount (QA) can be deducted for business mileage allowing for relief from national insurance (ie. 45p or 25p x business miles driven). The UTT confirmed that the definition of RME was concerned with the ‘nature of the payment by the employer to the employee, in particular, whether it is in respect of the use of a car. If it is a payment of RME, then one way or another there is relief for QA’. There was no requirement for the employee to evidence how the car allowance was spent, if at all.

The income tax relief available on authorised mileage allowance payments (AMAP) already permits employees to claim tax relief for business mileage not reimbursed by their employer (or reimbursed at a rate less than the AMAP rate). This decision brings the NIC rules in line with income tax rules which has seemingly been the focus of NIC policy makers in recent years.

I pay car allowances to my employees; can I reclaim the NIC?

The answer is not quite so simple as yes or no. There are a number of factors which would determine whether a potential claim could be made.

• Do you offer car allowances in lieu of company cars?
• Are those employees in receipt of car allowance expected to undertake business mileage?
• Do those employees actually undertake business mileage?
• Are those employees reimbursed business mileage at the approved business mileage rate (ie. £0.45 per mile for the first 10,000 business miles and £0.25 per mile thereafter)?
• Are the appropriate mileage records maintained to support business mileage claims (even where no mileage is reimbursed).

If you have provided car allowance, your employees are expected to and do carry out business mileage in their private vehicles and they are not paid, or are paid at less than the approved HMRC business mileage rates, then there is the potential that your business could make a claim.

We understand that HMRC are not appealing the UTT’s decision and therefore if the above fact pattern applies, you may be able to go back up to six years to claim an NIC refund. Where possible, claims should be made via the payroll by amending the Full Payment Submission (FPS) for the relevant years. We can help by providing advice on whether a claim may be possible, along with the potential refund quantum. We can also assist with the FPS amendments where we are your payroll agent.

Which employers cannot make a claim?

If your employees do not undertake business mileage in their personal vehicles or are reimbursed the full AMAP rate then there would be no possibility to make a reclaim for the NIC paid on their car allowance.

If you think this might be relevant to your business and you would like to discuss it further, please contact Katie Williams in the Employment Taxes Team at Hazlewoods.