A recent HMRC tribunal case has ruled that car allowances may be treated as a relevant motoring expenditure, which presents a great opportunity to businesses who may be due a National Insurance Contribution (NIC) refund from the tax man.
What is a car allowance?
A car allowance is an additional payment to employees to help them pay for and run their own car, van, or other vehicle for personal use. This is an alternative to providing employees with a company car.
Car allowance vs company car?
So why might you opt to provide employees with a car allowance rather than a company vehicle? The key difference relates to how much an employee can be reimbursed for business mileage. With a car allowance, as of 2023/24, an employee can be reimbursed tax and NIC free for the following amounts:
- up to 45p per mile for the first 10,000 miles
- 25p per mile over 10,000 miles
A company car, on the other hand, is subject to HMRC’s advisory fuel rates.
What was the tribunal about?
The tribunal was based on whether National Insurance Contributions (NICs) apply to car allowances being paid to employees for business mileage.
Appeals from Laing O’Rourke and Willmott Dixon resulted in the tribunal ruling that car allowances meet the criteria for “Relevant Motoring Expenditure (RME)” and that NICs are therefore not due provided they fall within the rates permitted by HMRC.
What does this mean for you?
This ruling presents opportunities for businesses that provide car allowances to employees. These companies may be able to reclaim some of these NICs from HMRC. There are some strict conditions, however, and it is important to carefully assess your situation before trying to make a claim.
- Do you have employees receiving a car allowance?
- Do these employees use their personal vehicle for business mileage?
- Are they claiming business travel at less than 45p per mile?
If you answer “yes” to all of the above, there may be an opportunity to claim.
What to do if you are an employer
If you are an employer that has provided car allowances to employees, you should be able to correct any overpayment of NICs. Your claim will need to be accompanied by the following evidence, as outlined by HMRC:
- A full list of employees and their NI numbers
- Evidence of the car allowances provided
- Evidence of business miles undertaken by each employee
- Evidence of any additional motoring expenditure that is relevant
- The Primary and Secondary Class 1 NICs that you would like to reclaim.
If you need assistance in putting your claim together, the Shorts team will be happy to help.
What to do if you are an employee
Employees who receive car allowances may also be able to claim an NIC refund. If you are an employee who believes this applies, we encourage you to contact your employer. If they have made a refund claim, they are obligated to pay the correct amount of overpaid NICs to applicable employees.
You can learn more about claiming NIC refunds on the HMRC website.
Tags: Payroll
