Car allowance payments not fully subject to NICs

In Laing O’Rourke Services Limited v HMRC & HMRC v Willmott Dixon Holdings Limited [2023] UKUT 155, the Upper Tribunal (UT) held that Class 1 NICs paid in respect of car allowance payments to employees were refundable where the employees had undertaken business mileage.

The National Insurance treatment of motoring expenses is not always aligned with the Income Tax treatment.

• Under Regulation 22A of the Social Security (Contributions) Regulations 2001, Relevant Motoring Expenditure (RME) may be deemed to be earnings for NICs purposes but only if it exceeds the amount that the employer may pay free from NICs, known as QA.
• QA is calculated by multiplying the relevant Approved mileage rate by the total business miles for which payment is being made.
• RME is:
  • A Mileage allowance payment.
  • An amount that would be such a payment but that is paid to another for the benefit of the employee.
  • Any other form of payment, except a payment in kind, made by or on behalf of the employer and made to, or for the benefit of, the employee in respect of the use by the employee of a qualifying vehicle.

Laing O’Rourke Services Limited (Laing) and Willmott Dixon Holdings Ltd (Willmott) operated employee car allowance schemes. Both employers, subject to certain conditions, offered eligible employees the option of a company car or a car allowance.

• Both companies treated payments to employees under the scheme as subject to Income Tax and NICs but then submitted repayment claims in respect of Class 1 NICs for all employees with business mileage, which HMRC refused.
• Willmott’s claims were made following the FTT decision in Total People v HMRC [2010] UKFTT379, which was later confirmed by the Court of Appeal in Cheshire Employer and Skills Development Ltd (formerly Total People) v HMRC.
• Laing’s claim amounted to £2,228,892 of NICs and Willmott’s was for £1,470,056.
• Willmott and Laing separately appealed to the FTT which allowed Willmott’s appeal but found in favour of HMRC in the Laing case. Laing and HMRC appealed to the Upper Tribunal (UT) which decided to hear the appeals together as they raised similar issues.
• The difference between these cases and the Cheshire Employer Court of Appeal case (see above) was that the latter case revolved around lump mileage allowance payments rather than car allowance payments.

The UT allowed Laing’s appeal and dismissed HMRC’s appeal with regard to Willmott, finding that both companies were entitled to a repayment of NICs.

• Regulation 22A(3)(c) captures a payment by an employer which is broadly in respect of the use by an employee of a vehicle. It is not limited to reimbursement of expenses for actual use and can extend to payments in respect of future use, whether or not the employee bears the cost of that use and with no focus on how the employee spends the allowance. The car allowance payments were therefore RME and could be deemed earnings.
• Since the payments were RME, QA could be deducted in respect of business mileage in calculating the Class 1 NICs due. As Laing and Willmott had paid NICs on the total car allowance amounts with no deduction for QA for business mileage the repayments were due. In the Laing case, this was to be remitted back to the FTT to decide the quantum of repayment due.
• Since the payments were RME it was not necessary to consider whether they were earnings under ordinary principles but if they were, a disregard (deduction) would apply in respect of amounts paid for business mileage when calculating the NICs due.

Comment

The technical analysis, in this case, is rather complex as the NIC’s legislation is by no means straightforward. This is borne out by the fact these cases have reached the Upper Tribunal despite there already being a Court of Appeal decision relating to similar though not identical circumstances. HMRC sought to argue the semantics of the meaning of RME and lost the argument. Given the amount of tax at stake here they may choose to go to the Court of Appeal again on this issue.

Useful guides on this topic

Company cars
Company car tax. How do you work out car benefit? How do you work out car fuel benefit? Are there savings for low-emissions vehicles? How do you reduce car benefit? Cars and the tax tribunals and Top Tax Tips.

Payrolling of benefits
The value of certain taxable Benefits In Kind can be included in taxable pay when calculating the PAYE deducted from payments of wages and salaries to employees.

What are earnings for NICs purposes?
What are earnings for National Insurance Contributions (NICs) purposes? Why is this important?

External link

Laing O’Rourke Services Limited v HMRC & HMRC v Willmott Dixon Holdings Limited [2023] UKUT 155