October 25, 2023
Have you ever wondered if you could reclaim National Insurance contributions (NICs) from your motoring expenses? Well, it turns out that thanks to a groundbreaking court win by Laing O’Rourke and Willmott Dixon, a new door of opportunity has swung open. Two recent decisions in the Upper Tax Tribunal have shed light on the possibility of recovering NICs when employers provide a car allowance to their employees and pay less than the Approved Mileage Allowance Payments (AMAPs).
Picture this: You’re an employee, and your company reimburses you at a rate lower than the AMAP for your business mileage. The good news is that you might be leaving valuable NIC payments on the table—money that could be staying in your pocket.
Let’s dig deeper into this exciting development.
The Tribunal Verdict
The Upper Tribunal judgement in the cases of Laing O’Rourke Services Limited and Willmott Dixon Holdings Limited against HM Revenue and Customs (HMRC) has brought much-needed clarity to the complex terrain of car allowance payments and NIC relief. The even better news is that HMRC has decided not to appeal the judgment, potentially paving the way for countless other employers to follow suit and claim the relief they deserve.
So, what’s the crux of the matter?
In essence, a car allowance falls under the category of relevant motoring expenditure (RME) since it represents a payment for using a personal vehicle for work purposes. When an employee is reimbursed for mileage at a rate below the AMAP, the difference can be offset against other RMEs, such as the car allowance payment. This offsetting effectively reduces the NIC liability for both the employee and the employer.
What It Means for Your Payslip
Let me break it down with an example. Imagine your company pays you 10p per mile for business travel, and you rack up 200 business miles. The difference between this rate and the 45p per mile AMAP rate amounts to £70. Going forward, your car allowance payment needs to be split into two lines on your payslip. The first £70 is taxable but NIC-free, while the remainder of the car allowance is taxable and subject to NIC.
But here’s where it gets even more interesting. If your company’s policies dictate that the first 10 miles of any business journey are not reimbursable, that’s an additional £4.50 (10 miles x 45p) of the car allowance that effectively escapes NIC.
The best part? NIC relief is applied on an earnings period basis, so you get relief on the full 45p per mile in each pay period, without reducing to 25p per mile after hitting 10,000 business miles, as is the case with tax relief.
Calculating the Qualifying Amount
Now, you might be wondering how to calculate the qualifying amount for NIC relief. It’s simple: it’s the product of the formula M × R. ‘M’ represents the total number of business travel miles, and ‘R’ is the applicable rate for your vehicle at the time of payment.
The Journey to NIC Relief
John Messore, the adviser behind the successful claims, shares his perspective: “My interest in this matter started 10 years ago when I sat through the Total People Court of Appeal case, where I saw the opportunity for all companies to save NIC on their car allowances. I am delighted we finally won, and my interpretation of the regulations was upheld by the Upper Tribunal.”
For over a decade, John has been urging employers and individuals to make retrospective claims, and now, it’s finally paying off. He adds, “I am aware of a number of companies and employees who have already been repaid by HMRC.”
What’s Next?
If you’re considering backdating claims or need further guidance, the Chartered Institute of Payroll Professionals (CIPP) recommends consulting a specialist in this area. Your financial future could be brighter than you think, and it’s time to seize the opportunity for NIC relief on car allowances. Get in touch with one of our experts here for a free quotation.
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Jessica is our Payroll Director who has built up over 11 years of experience within the Payroll industry. She leads our payroll department which is a national function that is strategically placed across all of our offices.
Jessica is responsible for ensuring her team works efficiently and accurately while maintaining compliance with all relevant regulations.
