Reclaiming NIC on car allowances – HMRC decide not to appeal
HMRC have decided not to appeal two recent tax cases that mean employers may be able to reclaim NIC paid on car allowances
NIC reclaims on car allowances
Two recent Upper Tribunal (UT) decisions mean employers may be able to reclaim National Insurance contributions (NIC) if they pay employee car allowances (via payroll) and reimburse business mileage at a rate of less than 45p per mile. For some employers, these NIC reclaims could be significant. As HMRC have decided not to appeal the UT’s decisions, these are now final. Employers should therefore review any car allowance payments they have paid to determine whether a claim for repayment of overpaid NIC would be appropriate and lodge any claims promptly so as to protect their position for earlier tax years.
What did the UT decide?
In the recent Laing O’Rourke and Willmott Dixon cases, both employers operated car schemes that let participants choose between a company car and a cash allowance. Participants who chose the cash allowance were required to keep a private vehicle available for business use. However, there was no requirement actually to spend the allowance on motoring expenses.
Both employers maintained that these car allowance payments were ‘relevant motoring expenditure’ that qualified for relief from NIC on the ‘qualifying amount’ of 45p per business mile travelled less, broadly, any business mileage reimbursed. HMRC challenged that position, but the employers’ view was ultimately upheld by the UT.
Further details on these cases are set out in our previous article.
What’s happened now?
UT decisions set a binding precedent unless they are overturned on appeal. However, HMRC recently confirmed they will not appeal the UT’s decisions in Laing O’Rourke and Willmott Dixon and so these decisions are now final.
This means that employers who pay cash allowances under employee car schemes in line with those in Laing O’Rourke and Willmott Dixon may be able to reclaim employer’s NIC, and facilitate reclaims of employee’s NIC, on car allowances paid as far back as 2017/18 (or earlier, in certain circumstances) as well as for subsequent tax years.
What should employers do?
Employers should progress claims before earlier years potentially become time barred. Consideration should also be given as to whether it is possible to submit a claim for years prior to 2017/18 to ensure all relevant claims are made.
Further points employers should consider are set out in our previous article on these decisions.
KPMG can assist employers to reclaim NIC on qualifying car allowance payments. If you would like to discuss this, or any aspect of your company car arrangements, please contact the authors or your usual KPMG contact in the UK.
