Car allowances – NIC reclaim opportunity – can my business make a claim?

A: Following a recent tribunal case involving HMRC, Laing O’Rourke and Willmott Dixon (read more about this in our Fleet News article here), it was found that Car Allowances can be treated as Relevant Motoring Expenditure, and where an employee receiving a car allowance has undertaken business mileage and been reimbursed at less than 45p per mile, there could be a potential NIC reclaim opportunity for the difference between the amount reimbursed and the 45p per mile, assuming the car allowance has been subject to tax/NIC via payroll. 

A: You need the following three things to make a potential NIC reclaim:

• Employees who have received a car allowance via payroll;
• These employees using their own car for business travel; and
• Business travel being reimbursed at less than 45p per mile.

A: Use our Form to provide a few details and we will send you a high-level savings analysis that we will then discuss with you to establish the next steps. 

A: HMRC have advised that their preferred method for employers to claim a refund is for this to be done through payroll via Real Time Information (RTI). An adjustment can be made by filing a new FPS for each tax year for which a refund is claimed. However, it should be noted that for employees where NIC is calculated on a monthly basis, claims cannot exceed the qualifying monthly rate of RME, with no averaging permitted over longer periods, so this needs to be considered when making the claim.

Where an RTI submission is not possible, then a claim can also be made by writing to HMRC. For larger businesses, the written claim should be addressed to your Customer Compliance Manager (CCM). If your business does not have a CCM, then please get in touch and we can advise where to address the claim.

A: At this stage, HMRC have not indicated that they expect supporting evidence to be submitted alongside the claim (particularly where this is made through RTI), but they will be able to undertake a review of claims made and would expect the following records to be kept as a minimum:

• Names and National Insurance numbers of all employees involved in the claim;
• Mileage rate paid per mile;
• Qualifying miles travelled per employee;
• Car allowances paid to each employee involved; and
• A calculation of the Class 1 Primary and Secondary NIC refund due.

Notably, HMRC have stated that petrol receipts do not need to be kept as evidence and a spreadsheet documenting the above details should be sufficient as a starting point.

Where a written claim is made, we would advise enclosing the above details as this will strengthen the basis of the claim and will likely reduce the timeframe for the claim being settled.

A: Employees will also be able to receive a NIC refund in light of the Laing O’Rourke and Willmott Dixon rulings. Therefore, we would recommend that employee NIC is included in the claim as this can be refunded to employees directly through RTI. Where the refund is claimed through writing to HMRC, guidance should be sought on how this is paid to the employees when making the written claim.

A: Former employees will also be entitled to a NIC refund and so we would advise that the claim includes them. HMRC have advised that this should be administered through RTI where possible. Where this is not the case, HMRC should be contacted for assistance with processing the refund.

A: Employees should have been reclaiming tax relief via self-assessment or a Form P87 where they have received reimbursement at less than 45p per mile for up to 10,000 miles and 25p per mile thereafter (where driving their own vehicle). If they have not, they will also have a potential tax relief reclaim to make individually. 

A: HMRC’s statute of limitations goes back six tax years in respect of NIC, so from the current point in time this would allow the refund to date back six years from the date a protective claim is submitted or an RTI refund is processed. However, HMRC have indicated employers may be able to claim a refund in respect of the previous six full tax years (back to the start of 2017/18 from the current point in time) and we expect there to be further guidance published in HMRC’s next Employer Bulletin.

There may also be a basis to go back further than six years where a reasonable excuse can be provided, though careful attention should be paid to HMRC’s guidance around what constitutes a reasonable excuse before including this within the claim.

To get the best possible outcome in circumstances where it will take time to gather the necessary details to make the claim, we would advise making an initial protective claim which will freeze the point in time that the refund can date back to.

A: Typically, car allowances are paid by employers as an alternative to providing a company car and the approved mileage rate of 45p per mile does not apply for company cars. Therefore, if you provide employees with both, it is unlikely you will have a case to claim a NIC refund, however, you may still be able to pay tax and NIC free mileage expenses at the HMRC advisory fuel rates. The amount that can be claimed depends on the vehicle driven and ranges from 10p to 25p per mile.

Provided the car allowance is being paid for the purpose of helping employees cover the costs associated with using a private vehicle for business purposes, then it will be considered Relevant Motoring Expenditure (RME) and so will be in scope where the NIC reclaim is concerned.

A: Tax and NIC relief should already have been claimed on this amount by way of not reporting it either through payroll or as a P11D benefit.

A: In this instance, it will be deemed that the employer has not paid any additional RME to top up the mileage paid, Therefore, the employee will be able to recover the tax through self-assessment, but the employer won’t be due a NIC refund as there is no RME on which NIC has been paid.

A: No. The mileage that can be paid NIC free remains at 45p per mile regardless of the number of miles driven. The restriction of relief to 25p per mile after exceeding 10,000 miles only applies for income tax.

A: No. A NIC refund can be claimed on the difference between 45p per mile and the mileage actually reimbursed irrespective of the number of miles driven. However, it will be important consider whether the costs and time outweigh the potential refund that could be due. 

A: Relief can only be claimed in respect of business miles, and HMRC expect that appropriate documentation is kept as evidence of reimbursed mileage being business related. Therefore, if you don’t have any business mileage, then it is unlikely there is a basis to recover the NIC on your car allowances.

A: If an employee has incurred business mileage whilst receiving a car allowance, you may be entitled to NIC relief on the full 45p per mile allowance. However, it should be noted that in this instance it may be more difficult to provide supporting documentation for your protective claim given there is no audit trail of expenses, which may reduce the likelihood of the claim being successful. 

A: As long as accurate records are kept documenting business mileage claims made using the fuel card, then a Class 1 NIC refund can be claimed where mileage is reimbursed at less than 45p per mile. However, please note that where fuel cards are also used to pay for private mileage, HMRC expect that this would be a benefit-in-kind subject to Class 1A NIC and may therefore challenge any Class 1 refunds claimed on the basis that NIC has not been correctly accounted for.

A: It will be critical to ensure there are accurate records clearly documenting the split between business and private mileage to ensure a NIC refund is only claimed in respect of the business miles. If these records are not available, this will make it more difficult to make a successful claim.

A: In this instance, NIC can only be reclaimed up to the amount that has been paid on the car allowance

A: Personally owned electric cars are subject to the same approved mileage rate of 45p per mile as petrol/diesel cars. Therefore, if you’ve been paid car allowances and have been reimbursed for business mileage at less than this, there will also be an opportunity to reclaim the overpaid NIC.

A: We recommend completing our Form to assess at a high level the potential savings available. We will then have a call to establish more details and set out an approach to::

• Lodge an initial Protective Claim with HMRC. This will be to inform them that we consider you have qualifying circumstances and to make sure we protect as many years as possible that can be included in the NIC reclaim; and then follow up with

• A full NIC Reclaim application either through RTI or by writing to HMRC. The necessary evidence should be gathered alongside this to ensure the claim is robust in light of any potential HMRC review.

HMRC will reserve the right to review each claim in detail critically and therefore this approach will help ensure the NIC reclaim is considered efficiently and dialogue is entered into at an early stage, followed up by relevant details.

We will be happy to support you with this and also consider any wider reward, travel and expense aspects for the current and future tax years.

A: The claim will be lodged by writing a letter to HMRC. We are helping clients consider how to prepare this letter currently.

If you are a large business and have a Client Compliance Manager (CCM), it will be appropriate to first talk to this contact initially. Otherwise, please reach out to us if you require assistance with identifying a dedicated contact who can handle your claim.

A: Where a car allowance paid partially or fully meets the definition of RME, the amount subject to NIC can be reduced by making an adjustment through RTI. HMRC prefer that adjustments are made on a monthly basis, although a single adjustment can be made at year end where this is impractical.