As part of the HMRC agent update 114, information has been shared on the reclaiming of NI following the Upper Tribunal ruling,
When employees use their own car for work, relief from income tax and an equivalent disregard from Class 1 National Insurance contributions can be due based on business miles driven.
For National Insurance, payments made must be classed as relevant motoring expenditure for the disregard to be available. The rate used is based on the highest approved mileage allowance payment rate for tax.
The rates can be found in the Employment Income Manual EIM31240. The disregard is not available on amounts over and above relevant motoring expenditure amounts.
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 is wider than HMRCs previous application.
The tribunal ruled that it is not just payments relating to actual use, but also potential and anticipated use of the vehicle. This will affect those who receive fixed sum car allowance payments where those payments are made in anticipation or potential use of a qualifying 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.
Guidance on qualifying vehicles can be found at Employment Income Manual EIM31255.
Where car allowance payments have been made and National Insurance contributions have been paid on these amounts for previous periods which are no longer due, a refund of overpaid contributions may be claimed.
For a claim to be successful all the existing rules still apply. The disregard is based on quantified and evidenced business miles driven — HMRC indicate that claims will not be successful if evidence cannot be provided. No disregard is available on payments made that are within the definition of relevant motoring expenditure if salary is sacrificed from an individual’s pay.
How to claim a refund — employers
Businesses with a similar circumstances to the Upper Tribunal cases will be able to correct 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:
- a list of the employees, with their National Insurance 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 (for example if they have received mileage payments at less than the HMRC approved rate)
- the Primary and Secondary Class 1 National Insurance contributions that is being reclaimed
RTI returns are subject to potential enquiry so businesses must ensure the relevant evidence is held and retained.
For employers within HMRC’s Large Business population, claims should be made through their customer compliance managers.
Where employers are unable to amend the RTI returns they can make written claims. They will additionally need to provide:
- the reference of the relevant motoring expenditure
- the reason the amendment cannot be made through RTI
For more information read HMRC guidance about payroll errors and correcting pay or deductions.
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 National Insurance contributions due to their employees.
If the employer has not applied for a refund, employees will have to provide on a pay period-by-period basis:
- evidence of the number of business miles
- the amount of car allowance payments that they have received
- details of any other relevant motoring expenditure payments that they have received (for example if you have received mileage payments at less than the HMRC approved rate)
- the Primary Class 1 National Insurance contributions that is being reclaimed
- the reason their employer is not applying for this refund on their behalf
HMRCs usual process for claiming National Insurance refunds will apply. You can read the guidance on claiming a National Insurance refund for more information.
PAYadvice.UK 16/11/2023
