In a key Upper Tribunal decision recently released, Judges have found in favour of both Laing and Willmott – two separate major construction businesses for whom HMRC has sought to deny repayment claims for Class 1 National Insurance (“NI”) paid on company car allowances.
In this article, Andrew Park, Tax Investigations Partner at Price Bailey, summarises the outcome and the important tax reducing implications where employees are provided with company car allowances.
The court cases brought together
Both companies have for many years operated company car schemes for thousands of employees in addition to separately allowing business mileage claims. Under the schemes, employees were entitled to choose either the provision of a company car or else to take a cash allowance.
Collectively, the companies have sought millions of pounds of repayments of Class 1 NI levied on car allowances paid under their schemes going back to 2004/05. In both cases, HMRC has sought to deny the repayment claims.
In the initial First-Tier Tribunal (“FTT”) stages of the appeals – which depend upon the same principles of law, Laing won – whereas, HMRC succeeded against Willmott. It always appeared that the different FTT Judges could not both be right.
Consequently, when HMRC appealed in Laing, and Willmott appealed in its own case, both appeals were heard together before the Upper Tribunal.
What position had HMRC taken?
At the core of both disputes was HMRC’s position that the respective payments could not rightly be classified as Relevant Motoring Expenditure (RME) within Regulation 22A of the Social Security (Contributions) Regulations 2001. As such, they could not be disregarded for NI purposes.
What did the Upper Tribunal decide?
The Judges considered it irrelevant whether employees could use their car allowances as they saw fit nor did it matter in deciding whether allowance payments were RME whether the allowances related to expected or anticipated use rather than actual use – RME can encompass expected use, potential use or availability for use.
The definition of RME and the related relief for Qualifying Amounts are concerned with the nature of the payment by the employer to the employee, in particular, whether it is in respect of the use of a car. If it is a payment of RME then there is relief for the Qualifying Amount of motoring expenditure. It does not matter how the employee actually spends the RME payment.
It remains to be seen whether HMRC will be granted permission to appeal to the Court of Appeal. However, given the far reaching consequences should they not do so, it seems inevitable that HMRC will attempt to contest this all the way. Should HMRC fail there is a likelihood that HMRC will seek new legislation to ensure that future car allowances do indeed far within the scope of NI.
If you have a question relating to anything mentioned in this blog you can contact Andrew using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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