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Follow the roadmap for NIC car allowance relief

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In the second part of this investigation into relevant motoring expenditure and national insurance refunds, Ian Holloway discusses correcting the problem, issues with HMRC’s updated guidance and the refund process.

8th Jan 2024
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As we discussed in the first instalment about how to reclaim national insurance contributions (NIC) relief on car allowances, the Agent Update (November) and the Employer Bulletin (December) are slightly different, which is not a help for employers or employees.

Retrospective claims are subject to a time limitation meaning employers (and employees) claiming now can only go back to tax year 2017/18 when recovering overpaid NIC. This is even though overpayments may have occurred for many tax years before that. However, there is no legislative way for employers or employees to recover any overpaid NIC for all those earlier tax years.

That NIC has been lost forever – except for a handful of taxpayers who obtained value-added advice and put in protective claims many years ago, which they can now bring to financial fruition. That is unpalatable and does not get a mention in November 2023’s Agent Update or December’s Employer Bulletin where HMRC admits they have misinterpreted the law. It also explains the cumbersome way in which employees and employers can backdate NIC refund claims where there is a “similar fact pattern” to the Wilmott Dixon and Laing O’Rourke ruling. 

For employers

This needs to be done via correction to Real Time Information (RTI) returns but evidenced on a period-by-period basis meaning huge data gathering as follows:

  • each employee with their national insurance number
  • evidence of the business mileage (for each employee)
  • the value of the car allowance for each employee (for each period) 
  • details of other relevant motoring expenditure (RME) (in the period for each employee)
  • the primary and secondary NIC for reclaim (for each employee in each pay period).

Only once this is done can a correcting RTI return be done but evidence is crucial.

For employees

Of course, the Agent Update says that employees who believe they are entitled to a refund should contact their employer in the first instance for a refund of primary contributions. This is immediate pressure on employers. The Update then explains that if the employer has not made a reclaim (as detailed above) the employee will have to compile period-by-period values and detail the amount of NIC being reclaimed. Then, the employee must use HMRC’s Claim a national insurance refund tool and detail the reason the refund is not being made via the employer.

So, pressure on employers and employees if the employer is not making the refund claim!

Yet, is HMRC’s interpretation of the facts correct and is the process for making reclaims so complicated as to put employees and employers off doing anything? Remember, we are talking of, potentially, millions of pounds. 

John Messore, managing partner and director from Innovation Professional Services Ltd, offered the following overriding comment: “I am pleased to see that HMRC has issued some belated guidance on claiming RME NIC relief. Unfortunately, the Agent Update (November) and Employer Bulletin (December) still show a lack of understanding of the law and common sense by HMRC.

  • “They focus only on cars when this clarification of the law applies to all qualifying vehicles, which even includes motorbikes – but does not include cycles.
  • “It is a bit rich for HMRC to say NIC are no longer due. The NIC were never due and were only paid because of misleading guidance from HMRC.
  • “They say, ‘Businesses with a similar fact pattern to the upper tribunal cases will be able to correct any overpayment.’ How is any taxpayer going to know if their fact pattern is similar to Laing O’Rourke or Willmott Dixon, when they have not seen any of Laing’s policies or documentation used in the court case?
  • “What does ‘to be successful all the existing rules still apply’ mean? Which existing rules? What do they mean by ‘if evidence cannot be provided’? What do they mean by ‘relevant evidence’? Or by ‘providing the reference of the relevant motoring expenditure’?
  • “HMRC clearly does not understand how Optional Remuneration Arrangements (OpRA)  operate. They say, ‘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.’ This is incorrect: what if the employee sacrificed salary for pensions? Is HMRC saying no NIC relief is available on the car allowance?”

Burdensome and unworkable

I believe the reclaims process is burdensome and unworkable, which could lead to valid reclaims not being made. Note that a difference between the Agent Update (November) and the Employer Bulletin (December) is HMRC’s inclusion of the words: “Where employers are unable to amend their RTI returns they can make written claims.” This is followed by the words that where such a written claim is made, employers must give “the reason the amendment cannot be made through RTI”. This translates as HMRC saying that the same information must be provided in writing and an explanation of why HMRC must do the work rather than the employer by amending RTI submissions.

Messore had this to say on HMRC’s suggested route:

  • “It seems completely impracticable to push employers down the route of correcting up to 84 (7 x 12) RTI submissions for monthly paid staff (for weekly paid staff that means recalculating up to 364 (7 x 52) payslips to arrive at the revised NIC figure due because of now retrospectively applying the correct disregard). Other taxpayers have been able to claim on a spreadsheet, indeed Willmott and Laing were both able to submit annualised claims.
  • “Employees, particularly in large organisations, will not have a clue whether the employer has made a claim on their behalf or not. Yet, HMRC envisages employees making their own claims. Do HMRC really want over 1m employees submitting their own claims for £10 here, £50 there or £3,000 for high mileage drivers – as the case may be? HMRC also asks the employees to calculate the primary refund. This will have to include those months where the rate was 13.25% because of the Health and Social Care Levy and for any employee at the cusp of 12%/2% NIC this will be a mathematically impossible task for them.
  • “The common sense approach is for employers (who wrongly deducted NIC in the first place) to submit a claim for the company and the employee – since the employer is far more likely to centrally hold all the historic data than the employees. Indeed many employees might not even be working for that employer any more and so won’t be able to access historic mileage data.

“Finally the one thing HMRC repeatedly stresses is the importance of being able to provide mileage evidence. The most tax-compliant mileage capture system currently available in the UK is Traxmiles and I would encourage everyone to have a look at that system.

“Having specialised in this area and successfully advised clients for the past 18 years on this one subject, I am afraid the public who rely on HMRC guidance will be none the wiser reading the Update or the Bulletin and may make incorrect decisions that will come back to bite them in the future.”

Final thoughts

I am extremely grateful to Messore for his comments, which prove we are not there with accurate, complete or practical guidance yet. In addition, some things that stand out are the following.

  • All HMRC’s manuals, Employer Bulletins and Agent Updates are their interpretation of the law. Sometimes, interpretations are not correct.
  • Helpfully (not) both the Agent Update and Employer Bulletin advise employees to contact their employer for a refund of primary contributions in the first instance. Be aware!
  • Remember, though, that if the law says the employee should not have to pay NIC but NIC have been deducted, the employer has made an unlawful deduction from them. Employment tribunal claims are a possibility
  • How should we adjust processes moving forward?

If you have further questions or comments on this issue, contact Messore as this is his passion.

Replies (2)

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By AK Employment Tax Services
09th Jan 2024 08:51

This is a good summary but in determining a claim with HMRC it is my understanding that you would need to proceed under Regulation 22. This requires that when looking at each earnings period for a particular employee that a claim for RME can be made. HMRC have historically taken the view that Regulation 22 precludes the making of a claim for RME if there had already been a claim made for that same earnings period.

I appreciate this adds to the complexity but it is in accordance with the rules and employers who wish to side step this would need to obtain HMRC approval

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By FactChecker
10th Jan 2024 11:25

Aren't HMRC wonderful?
'We got it wrong, but you have to do all the work to retrospectively determine the scale of our error'!

This is out of the same playbook as the Contaminated Blood scandal (or indeed the demand that wrongly convicted Postmasters get the conviction formally overturned before compensation can be considered) ... the art of kicking tin-cans into long grass is by no means lost within HMRC et al.

But, although I hate to admit it, they win ... I'd never attempt all the required hurdles, simply on the basis that the effort (and hence cost) outweighs the return!

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