Car allowances - Could your company be due a NIC refund?
Following a recent Upper Tribunal decision, employers may be able to claim a refund of National Insurance Contributions (NIC) on car allowances paid to their employees.
Employers who are providing employees with car allowances should review their position as soon as possible to establish whether any NIC refunds could potentially be claimed.
What’s the issue?
The Upper Tribunal has recently found in favour of the taxpayer in the case of HMRC vs Laing O’Rourke and Wilmott Dixon. The issues surrounding this case broadly revolved around whether the payment of a car allowance to employees constituted earnings for NICs purposes, and whether the difference between HMRC’s approved mileage rate and the mileage rate actually paid by the employer will be exempt from NIC purposes.
Following the taxpayers’ successful appeal, Class 1 NIC which has been paid to HMRC in respect of employee’s car allowance payments may now be refundable.
Will my company be eligible to claim a NIC refund?
Your company’s eligibility for a NIC refund will largely depend upon whether there are similar circumstances to the Laing O’Rourke and Wilmott Dixon case.
In this case, both employers had a policy which let the employees chose between a cash allowance and a company car. The employees who chose the cash allowance were required to maintain their own privately owned vehicle for business use, but there was no obligation to spend all of the allowance on their motoring expenses. The amount of the allowance each employee was entitled to was based on the employees’ seniority and motoring expenses.
Therefore, when considering your own eligibility for a refund the following questions need to be considered:
Do you pay a car allowance to employees, and does it represent ‘relevant motoring expenditure (RME)?’ Broadly speaking, for a payment to be RME, employers must be able to demonstrate that there is a sufficient obligation for your employees to maintain a private car for business use. A review of your car policy and employees’ contracts may assist you with determining an answer to this question.
Are the allowances paid to your employees subject to Class 1 NICs? Care should be taken if your employees are in receipt of car allowance payments made on or after 6 April 2018 under salary sacrifice arrangements, as these may not be eligible for NIC relief.
Are the employees who are in receipt of the mileage allowance payments expected to and do undertake business mileage?
Are those employees reimbursed for their business mileage at a rate that is below HMRC’s approved business mileage rate (45p per mile for NIC purposes), or not reimbursed at all?
- Are sufficient records kept to support employees business mileage claims? It is important to demonstrate that your process for documenting and reimbursing the business miles travelled each year was accurate.
If the answers to the above questions are ‘yes’, a claim for a refund may be possible.
Are there any time limits to be aware of?
In a word, yes.
Claims for refunds can be made for the six previous tax years, which means that employers with the applicable circumstances will be able to claim relief going back to the 2017/18 tax year, provided the claim is made before 5 April 2024.
Can Rickard Luckin help?
This decision may give employers an opportunity to restructure how their car allowance payments are made for NIC purposes going forward.
If you would like to discuss any of the above, or other aspects of your company car arrangements, please get in touch.
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch: