TT162: Lump sum car allowances – Potential NIC reclaim

March 23, 2011

TT162 Lump sum car allowances – Potential NIC reclaim


You may have an opportunity to reclaim National Insurance Contributions (NIC).

As some of you may already be aware, HM Revenue & Customs (HMRC) recently lost a Tax Tribunal case concerning the treatment of lump sum car allowance payments made to employees who use their own car for business purposes.

As expected, HMRC have confirmed that they will be appealing the decision and if granted then the recent decision is not settled at this stage.


Who could make a potential claim?

A potential NIC refund could be due to you an as employer and to your employees if you:

  • pay a business mileage payment at less than the 40p per mile and
  • pay a lump sum allowance to your employees for the use of their own private car and
  • have retained records to verify the business mileage and
  • there is no direct link between the lump sum car allowance and salary

Do you make lump sum car allowance payments to employees and pay the same employees business mileage at less than 40p per mile? If so, read on…


How much is the potential reclaim worth?

Potentially, very significant!

For example, you pay an employee a car allowance of £500 per month and reimburse business mileage at 15p per mile. The car allowance is likely to have been subject to both income tax and NIC whilst the 15p rate will be free of any income tax and NIC.

Assuming that the employee travelled say, 10,000 business miles in the last year, we estimate that your company could make a claim for a refund of the employers’ NIC of £320. The claim could go back up to a maximum of six tax years, so if you have say, 100 employees in the same or similar situation then you could have a potential claim of £192,000!

Based on the same annual mileage, your employees could also claim a refund of employees’ NIC which could be £275 per employee per year or £1,650 per employee over the past six tax years.


Interested – Act now!

If you think that your company and your employees could make a potential claim for overpaid NIC, you should consider making a protective claim to HMRC by 5 April 2011 to maximise your claim.

Want some more information? Contact your Barnes Roffe Partner without delay.

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