Reclaiming NICs on company car allowances
Associate Director Robert Salter looks at employer eligibility around reclaiming National Insurance Contributions (NICs) on company car allowances
Robert Salter looks at employer eligibility around reclaiming National Insurance Contributions (NICs) on company car allowances.
Why is it relevant?
Some employers have traditionally provided their employees with ‘round sum motoring allowances’ (e.g., a company car allowance) and then either:
- Expected the individual to provide their own car for business purposes and pay all business mileage costs directly, or
- Only provided for business mileage expense claims on a restricted basis (that is, below the rates which are HMRC approved) with the assumption being that the remaining costs are covered by the round sum payment(s) which the individuals have received.
While this approach has always been practical from an Income Tax perspective – that is, individuals can simply make a claim for Income Tax relief for their business miles via their annual self-assessment tax return – the NIC position has been unclear.
Specifically, HMRC always argued that exemption from NIC is not available for ‘round sum allowances’ of this type, and that for no NIC to arise, the employers needed to specifically reimburse actual, evidenced business mileage claims.
Who does it affect?
Any Employer who has been paying NICs on company car allowances (and similar motoring allowances).
What do you need to know?
For employers and employees, the position now (after a recent Upper Tribunal Ruling) is that the Upper Tribunal has confirmed that the advance payment of motoring expenses (i.e., via round sum motoring allowances) can be outside the scope of NIC in certain circumstances.
Requirements for the payments to be exempt from NIC include:
- Did the company provide employees (or at least some employees) with a round sum motoring allowance (or similar payments) from which they were required to provide a vehicle for business purposes?
- Did those round sum payments get subject to class 1 NICs?
- Where the individuals expected to have business mileage?
- Is there a proper record of the business mileage they had during the relevant tax years?
- Was any reimbursement of actual mileage which they received (if any) below the regular HMRC approved rates for when an employee uses a private vehicle on company mileage?
The good news is that if the above conditions are all satisfied, it may be possible to reclaim the employee and employer NICs which were paid on the allowances, for up to six years.
What should you do next?
Claims would typically be made via a payroll adjustment – that is, a so-called ‘Earlier Year Update’. However, employers do need to realise that while they are entitled to get the employer NICs back, where the relevant conditions are satisfied, the employee NICs would be due back to the employee (though this would still in practice need to be undertaken via the Earlier Year Update process).
In addition, employers need to understand that there is a six-year time limit on such claims, so employers could potentially go back to the 2017/18 UK tax year.
If you would like to discuss the above matter or to confirm how this impacts your company, please get in touch with your usual Blick Rothenberg contact, or Robert Salter using the details below or this form to see how we can assist with any future planning.