National Insurance (NIC) Reclaim – Motor Expenses

HM Revenue & Customs (HMRC) recently lost two cases (Laing O’Rourke Services Limited and Willmot Dixon Holdings Limited) at the Upper Tribunal regarding National Insurance Contributions (NIC) and relief for motor expenses.  HMRC decided not to appeal these cases.  Therefore the judgements are binding and pave the way for potential NIC refunds for employers and employees.

The cases relate to car allowance payments and whether relief was available as Relevant Motor Expenditure for NIC purposes. HMRC took the view that car allowance payments, made where an employee decides to take a cash allowance from their employer to maintain a suitable vehicle for business purposes instead of having a company car, were earnings for Class 1 NIC purposes.  The resulting Class I NIC was therefore deducted from the employees’ salaries. The two companies argued successfully that an element of this car allowance was Relevant Motor Expenditure and therefore should be exempt from Class 1 NIC.

The conditions for relief are that the employee must be in receipt of car allowance and undertake business miles for the employer. The reclaim may be due where the employer does not reimburse the employee at the approved mileage rate of 45p per business mile.  The amount due for repayment will be based on the difference between 45p per mile and the amount actually paid by the employer.

For example, if an employee undertakes 12,000 business miles in a year and the company only reimburses the employee at 20p per mile. The claim will be based on 12,000 miles at 25p per mile giving a total qualifying amount available for relief of £3,000. The current NIC rate for employers is 13.8% giving a total repayment of £414 for the business mileage of that one employee.  Therefore, if the company has several employees in this position, it could yield a substantial reclaim.

The reclaim is also available for the NIC charged on the employee so the employee should also be due a repayment. This repayment will be dependant on whether the employee was subject to NIC at the higher rate of NIC (12% up to 5 January 2024 and 10% thereafter) or the lower rate of NIC (2%).

HMRC have confirmed that claims can be made going back 6 tax years.  Therefore claims can be made for the years ending 5 April 2018 and later.  Note that a claim for the year ended 5 April 2018 will need to be submitted by 5 April 2024.  If there is not enough time to collate the required information for 2017/2018 to make the actual claim before 5 April 2024, it is suggested a protective claim is made for this year with the actual claim with supporting details to be made as soon as possible after then.

In order for the reclaims to be made HMRC have stated that in the first instance Real Time Information (RTI) submissions should amended with these claims substantiated with the following evidence:

• A list of employees and their NI Numbers who are included in the claim
• Evidence of the number of business miles undertaken
• Amount of car allowance payments that the employees received
• The NIC, employer and employees, that are being reclaimed

If the employer cannot amend the RTI submission they can submit a repayment claim in writing, although they will have to provide HMRC with reasons why the RTI submission cannot be amended.

It should be noted that where an employee forgoes or sacrifices earnings for a car allowance after 6 April 2018, then no claim for relief is available as this is covered by the Optional Remuneration legislation.

Employee Income Tax Reclaim

Employees should also check that where they are being reimbursed at under the approved rates that the appropriate income tax relief is also being claimed. If the relief is not being claimed then should take steps to start making claims and also make backdated claims for the previous four tax years. Note that a claim for 2019/2020 will need to be made by 5 April 2024.

If any employer or employee would like more information, please get in touch and we can help with any claims.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

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