HMRC clarifies NIC reclaim rules on car allowances

HMRC clarifies NIC reclaim rules on car allowances
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Peninsula Team, Peninsula Team

(Last updated )

As a result of the Upper Tribunal ruling in the Wilmott Dixon and Laing O’Rourke case, HMRC has issued an update on how to reclaim historic NIC charges as it does not plan to appeal

HMRC’s loss in the recent Upper Tribunal in the case of Wilmott Dixon and Laing O’Rourke has determined that the types of payments that can fall within the definition of relevant motoring expenditure is wider than HMRC’s previous interpretation. This affects employees with car allowances that use their own vehicle for work.

KPMG partner Caroline Laffey said: ‘These tribunal decisions, which HMRC decided not to appeal, mean that employers with car schemes comparable to those in the Laing O’Rourke and Willmott Dixon cases may reclaim NIC paid on car allowances as far back as 2017-18 (or earlier, in certain circumstances).

‘Note, however, that car allowance payments made on or after 6 April 2018 under ‘optional remuneration’ or other salary sacrifice arrangements do not qualify for NIC relief.

‘NIC relief may also be due on allowances paid going forward, although the mechanics of recovering this are still being considered.’

In the latest update to employers, HMRC confirmed: ‘The tribunal ruled that it is not just payments relating to actual use, but also potential and anticipated use of the vehicle.

‘This will affect those who receive fixed sum car allowance payments where those payments are made in anticipation or potential use of a qualifying vehicle.’

Where car allowance payments have been or will be made for use of a qualifying vehicle, they may now benefit from a higher amount of disregard because the amounts classed as relevant motoring expenditure could be higher.

Where car allowance payments have been made and NICs have been paid on these amounts for previous periods which are no longer due, a refund of overpaid contributions may be claimed.

HMRC stressed that ‘for a claim to be successful all the existing rules still apply. The disregard is based on quantified and evidenced business miles driven — claims will not be successful if evidence cannot be provided.

‘No disregard is available on payments made that are within the definition of relevant motoring expenditure if salary is sacrificed from an individual’s pay.’

When employees use their own car for work, relief from income tax and an equivalent disregard from Class 1 NICs can be due based on business miles driven.

For National Insurance, payments made in respect of the use of the vehicle must be classed as relevant motoring expenditure for the disregard to be available. The rate used for the disregard is based on the highest approved mileage allowance payment rate for tax.

The rates can be found in the Employment Income Manual EIM31240. The disregard is not available on amounts over and above relevant motoring expenditure amounts.

HMRC guidance is being updated to reflect the outcome of the tribunal ruling and it said 'further communications will be made to signal when these changes have been made'.

 How to claim a refund — employers

Businesses with a similar fact pattern to the Upper Tribunal cases will be able to correct any overpayment. Where real time information (RTI) is used to correct, these claims will need to be substantiated on a pay period-by-period basis with the following evidence:

  • a list of the employees, with their National Insurance numbers, included in the claim;
  • evidence of the number of business miles undertaken by each employee;
  • the amount of car allowance payments that these employees received;
  • details of any other relevant motoring expenditure payments that the employees have received (for example if they have received mileage payments at less than the HMRC approved rate);
  • the Primary and Secondary Class 1 National Insurance contributions that is being reclaimed.

HMRC warned that ‘RTI returns are subject to potential enquiry so businesses must ensure the relevant evidence is held and retained’.

For large business employers, claims should be made through HMRC’s Large Business customer compliance managers.

Where employers are unable to amend their RTI returns they can make written claims. If making a written claim, in addition to the evidence, they will need to provide:

  • the reference of the relevant motoring expenditure; and
  • the reason the amendment cannot be made through RTI.
  • How to claim a refund — employees

Where employees believe they are due a refund they must contact their employer first. If an employer has made a refund claim, they should repay any overpaid NICs due to their employees.

If the employer has not applied for a refund, employees will have to provide on a pay period-by-period basis:

  • evidence of the number of business miles;
  • the amount of car allowance payments that they have received;
  • details of any other relevant motoring expenditure payments that they have received (for example mileage payments at less than the HMRC approved rate);
  • the Primary Class 1 National Insurance contributions that is being reclaimed; and
  • the reason their employer is not applying for this refund on their behalf.

HMRC’s usual process for claiming National Insurance refunds will apply.

For help with payroll matters, visit BrAInbox today where you can find answers to questions like Can a 14 year old work without a national insurance number?

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