Impact of recent Upper Tribunal decision on National Insurance contributions
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 in respect of the use of the vehicle must be classified as Relevant Motoring Expenditure for the disregard to be available. The rate used for the disregard is based on the highest applicable Approved Mileage Allowance Payment rate for tax. The disregard is not available on amounts over and above Relevant Motoring Expenditure amounts.
In the recent Upper Tribunal in the case: 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 HMRC’s 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 affects those who receive fixed sum car allowance payments where those payments are made in anticipation or potential use of a qualifying vehicle.
Where a car allowance payment has 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. Further guidance on qualifying vehicles is available.
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. 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.
HMRC indicate that guidance is being updated to reflect this outcome and further communications will be made to signal when these changes have been made.
How to claim a refund — employers
Businesses 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-pay-period basis with the following evidence:
- 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 are being reclaimed
RTI returns are subject to potential enquiry so businesses must make sure the relevant evidence is held and retained.
For employers within HMRC’s Large Business population, claims should be made through the Customer Compliance Manager.
Where employers are unable to amend their RTI returns they can make written claims. If making a written claim, in addition to all the same evidence above, the following must be provided:
- the reference “Relevant Motoring Expenditure” must be used
- the reason the amendment cannot be made through RTI
More guidance for employers on fixing problems with running payroll is available.
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-pay-period basis:
- evidence of the number of business miles
- the amount of Car Allowance payments they have received
- details of any other Relevant Motoring Expenditure payments they have received (for example they 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
HMRC’s indicate that the usual process for claiming National Insurance refunds still apply. Further guidance on claiming a National Insurance refund is available.
PAYadvice.UK 8/12/2023