The recent Upper Tribunal case of Laing O’Rourke v HMRC, heard alongside the similar case of HMRC v Wilmott Dixon, opens the gates for many employers to reclaim both employers and employee’s National Insurance Contributions (“NICs”).
The cases involve NIC reliefs on payments of car allowances, which have been subjected to NICs, for making an employee’s private car available for business travel and a business mileage allowance that is lower than the HMRC approved rate.
The amounts that can be reclaimed will be dependent on the mileage undertaken and the mileage allowances paid, but for an employee who receives a mileage allowance of 25p per mile as well as a car allowance, the combined employer and employee amount could be around £500 per employee per year. NIC overpayments can be claimed for periods of up to six years so this is an area that is worth considering.
What is the issue?
Where an employee undertakes business mileage in a private car or van, tax relief can be claimed at HMRC’s approved rates which are:
- 45 pence per mile for the first 10,000 business miles in a tax year and;
- 25 pence per mile for business miles in excess of 10,000 miles.
This means that if an employer paid a lower mileage rate, the employee can claim tax relief on the difference between the amount paid and these approved rates. The tax position is therefore quite straightforward.
However, claiming National Insurance Contributions (“NIC”) relief is not so straightforward and is an area that tax tribunals have been considering for more than a decade.
NIC Technical position
The NIC legislation allows payments of “relevant motoring expenses” or “RMEs” to be paid without deduction of NICs. Mileage allowances of up to HMRC rates are RMEs and may therefore be paid without deductions of NIC.
The NIC legislation also allows other forms of payment in respect of the use by the employee of a qualifying vehicle. It is the interpretation of this which has provided difficulty in tribunals but the latest case has confirmed that RMEs can potentially include car (cash) allowances provided to employees. The implication of the ruling means that it may be possible for employers to reclaim employers NIC paid on car (cash) allowances for the previous 6 tax years.
What is essential is that the wording of the car policy agreement is aligned to the circumstances of the case.
What next?
As it stands, this is a legal decision that can be relied on although HMRC may have the right to make a further appeal to the Court of Appeal.
Any business who has paid a car allowance to employees along with a mileage allowance at a rate lower than HMRC’s official rate should consider whether their circumstances will be in line with this case.
This may also give employers the opportunity to generate NIC savings going forward.
The UNW employment tax team has a lot of experience in assisting clients with NIC repayments and would be happy to discuss this matter with you.
If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
