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Car allowances were subject to NIC

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In a test case for the treatment of car allowance payments, the FTT decided HMRC was right to decline to refund £2.2m of class 1 NIC as the payments were earnings.  

6th Aug 2021
Tax Writer
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Laing O'Rourke Services Ltd (LOR) is a multinational construction and engineering company. The company operated a car scheme which allowed employees who were entitled to receive a company car, or a car allowance payment under the scheme instead of a company car, provided that the employee had a car available for use which met specified requirements.

Background

Within LOR’s employment structure, there were eight staff grades, covering fixed location staff, site-based staff, and roving staff. Subject to meeting different requirements, at times all eight grades could potentially qualify for the car scheme.

For each grade there was an assumed level of car which an employee must have had available for use to qualify for the scheme. Payments under the scheme were determined purely by reference to job grade, and there was no minimum business mileage requirement or overall minimum mileage requirement for the employee-owned cars.

The payment amounts also remained the same throughout the years under appeal (2004/5 to 2017/18)

Approach

Applying the framework adopted by the Court of Appeal in Cheshire Employer, which involved the payment of travel allowances to employees, the first tier tribunal in this case [TC08161] considered whether:

  • The payments were earnings under general law;
  • If yes, whether the disregard in the Social Security (Contributions) Regulations 2001, sch 3 pt VIII, para 7A applied;
  • If no, whether regulation 22A applied (reg 22A only applies to the extent that the payments are not otherwise earnings).

It was common ground that the cars driven by the participants in the scheme were “qualifying vehicles” for the purposes of the relevant legislation.

Were the payments earnings?

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Replies (8)

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By AK Employment Tax Services
06th Aug 2021 14:32

The drafting of Regulation 22 makes hard reading and leave little opportunity for these types of claim to succeed.

This issue stands at the forefront of the NIC rules. To permit this claim would have created problems over the fact that NIC is calculated by reference to a earnings period.

This re-opens the debate about the harmonisation of income tax and NIC

Thanks (1)
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By Hugo Fair
07th Aug 2021 14:21

I don't know who advised Laing O'Rourke Services Ltd to fight this case, but IMHO it was doomed to failure from the start.
A car allowance is by default a payment of earnings (and is how it has been treated in every company I've known for over 30 years), so it's not a promising start to claim an exception to this foundation via a rather woolly argument ... and it continued downhill from there.
Frankly, it's not often that an FTT case is this black-and-white.

Thanks (2)
Replying to Hugo Fair:
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By rbw
09th Aug 2021 11:36

Hugo Fair wrote:

I don't know who advised Laing O'Rourke Services Ltd to fight this case, but IMHO it was doomed to failure from the start.

I have no idea who advised them but I noted with some surprise "Mr Jolyon Maugham QC and Ms Georgia Hicks, instructed by Deloitte LLP for the Appellant". I had seen it widely reported that he had given up his practice to work at the Good Law Project[1]. I suppose it might be that he saw the NICs charge as another great intrusion by an immoral government with no regard for the constitution - an argument with as much a chance of success I'd think as those he led in this case.

[1] e.g. https://www.theguardian.com/law/2020/nov/22/jolyon-maugham-qc-covid-cron...

Thanks (1)
Replying to rbw:
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By Hugo Fair
09th Aug 2021 12:46

Oh dear, I've known the second person you've listed since she was a baby ... so, although I'll not be repeating my opinion above to her face, I'll just say she is an honourable and intelligent person (who's relative lack of experience may have led her to be part of this foolish case).

Thanks (1)
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By AK Employment Tax Services
07th Aug 2021 14:59

I don’t know who was behind advising on this I agree with your assessment

Thanks (1)
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By petestar1969
09th Aug 2021 10:09

Obviously the payments were earnings, changing the label in the payroll doesn't change the reality.

Thanks (1)
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By petestar1969
09th Aug 2021 10:09

Obviously the payments were earnings, changing the label in the payroll doesn't change the reality.

Thanks (0)
RLI
By lionofludesch
10th Aug 2021 16:34

Who's surprised by this ?

Thanks (0)