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 are wider than HMRC’s previous interpretation. This affects employees with car allowances that use their own vehicle for work, and their employers. Employers with car schemes comparable to those in these cases may be able to reclaim NIC paid on car allowances as far back as 2017-18 (or earlier, in certain circumstances).

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

In the latest update to employers, HMRC advised as follows:

The tribunal ruled that it is not just payments relating to actual use, but also potential and anticipated use of the 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 guidance is being updated to reflect the outcome of the tribunal ruling.

If you believe that you may be due a refund as a result of this ruling, your usual DSG contact will be happy to assist with reviewing the position and, if appropriate, preparing a refund claim.

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 NI 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
  • the Primary and Secondary Class 1 National Insurance contributions that are being reclaimed

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.

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 similar information to HMRC as that required for employer claims, on a pay period-by-period basis, as well as the reason their employer is not applying for this refund on their behalf.