Reclaim NIC on car allowances?
The Upper Tribunal recently decided in favour of the taxpayer in Laing O’Rourke and Willmott Dixon, meaning employers may be able to reclaim NIC in circumstances where they paid employees car allowances and reimbursed business mileage at a rate lower than 45p per mile.
To qualify for an NIC repayment, the car allowance payments must represent ‘relevant motoring expenditure’. This is defined in detail in the case, with emphasis on there being a sufficient obligation on the employee to maintain a private car for business use. Such terms would usually be contained within the company’s car policy document or employees’ contracts.
The amount of any claim is calculated based on the business mileage claimed, multiplied by 45p, less the amount reimbursed per mile e..g if an employee who travelled 5,000 business miles were reimbursed 35p per mile, then they have been ‘underpaid’ £500 compared with the standard rate per mile. This amount can be used to offset the NIC on a fixed car allowance payment, in this case allowing an employer’s NIC reclaim at 13.8% of £69 per year.
Claims can go back to 2017/18, so if the employee numbers and/or mileage were significantly higher, the repayments could be much higher too.
Where available, NIC relief could also extend to employees, where it is likely the employer would administer any claims on an employee’s behalf.
It’s important to note, that any car allowance payments made on or after 6 April 2018 under ‘optional remuneration’ or other salary sacrifice arrangements, are not eligible for NIC relief.
It remains to be seen whether HMRC will be granted permission to appeal to the Court of Appeal.