Court of Appeal ruling provides welcome clarity on car allowances

Last week’s Court of Appeal decision enabling refunds on National Insurance Contributions (NICs) for car allowances provides much-needed clarity for employers, says leading national audit, tax and advisory firm Crowe Clark Whitehill.

The decision in Cheshire Employer and Skills Development Limited (formerly Total People Limited) v The Commissioners for Her Majesty’s Revenue and Customs means that where employers pay a car allowance to assist with running costs for business cars, employers and employees could be entitled to reclaim some NICs on Relevant Motoring Expenses. These expenses could be claimed to a rate per business mile of 45 per mile for the first 10,000 miles, and 25 per mile thereafter. In some cases, these refunds on NIC could be backdated for years.

Susan Ball, Director of Crowe Clark Whitehill’s Employee Advisory Group, welcomes the Court’s decision, saying:

“We are pleased that the Court of Appeal ruled in favour of Total People and that the decision from the First Tier Tribunal will be reinstated. The case has provided much needed clarity about the conditions which must be met for payments of car allowances to be exempt from NIC. The impact of this decision is wide as both employers and employees can submit claims for refunds of NIC going back many years.”

The decision overturns the 2011 Upper Tribunal ruling which found that lump-sum car allowances could be subject to NICs. Crowe Clark Whitehill’s Employers’ Advisory Group have worked with employers to help them negotiate refunds from HMRC and plan opportunities in this complex area.

David Daly, partner and Head of Crowe Clark Whitehill’s Employers’ Advisory Group, says:

“This clarification by the Courts provides a fantastic opportunity for organisations to recover significant amounts of NICs. Any organisation that has provided its employees with a cash allowance in lieu of a company car should review its position immediately to take advantage of this opportunity.”