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John Messore, managing partner and director, Innovation LLP, provides details and guidance in this area following the outcome of recent court cases I n 2006, I helped to set up a new business called Innovation LLP to help clients to correctly apply the National The NI treatment of business mileage undertaken by employees driving their own cars
But there are many subtle differences. For income tax, there are two rates of 45 / 25p. For NIC, the rate is always 45p. For income tax, the relief is against all other income. For NIC, it’s only against something called RME or relevant motoring expenditure, which includes any payment made by the employer to the employee, in respect of the use of a qualifying vehicle, which is itself a defined term including cars and vans. For income tax, the employee has the option of claiming the relief on his or her tax return / P87 claim. “Will HM Revenue and Customs (HMRC) repay the primary National Insurance contributions to the employer, who will then need to track down and refund those employees or For NICs, the employer’s payroll department must give the employee relief will HMRC refund the employees directly?”
for their business mileage against the car allowance.
Worked example Say an employee is paid 12p per mile by their employer for using their own car on business, plus a monthly car allowance of £500. If the employee does no business mileage, then it’s correct to tax and NIC the car allowance in full. But, if the employee drives 1,000 business miles, then they can claim tax relief on £330 ((45p – 12p) x 1,000 miles), and the employer has the sole responsibility of ensuring the first £330 of the car allowance is disregarded (ignored or relieved) for NIC purposes and of calculating NIC on only the remaining £170 of the car allowance. If an employer deducts NICs in full, then apart from the ‘wrongful or unlawful deduction’ point above, they have wrongly overpaid both primary and secondary NICs, and so are then entitled to recover this from HM Revenue and Customs (HMRC), subject to certain time limits. That is exactly what happened in the recent tax cases of Laing O’Rourke and Willmott Dixon v HMRC.
Insurance contribution (NIC) regulations, while almost everyone else was wrongly deducting NICs in full from car allowances. In the process, they were making unlawful deductions of NICs under Section 13 of the Employment Rights Act 1996. See here: https://ow.ly/MPoS50PWpyX. Recap of the law Section 229 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 (https:// ow.ly/33NS50PWu5c), and predecessor legislation, introduced the approved mileage allowance payments (AMAPs) legislation in 2001, saying that staff driving their own cars are entitled to income tax relief up to 45 per business mile if their employers pay them less than that. After 10,000 miles, the rate drops to 25p.
In 2002, Statutory Instrument (SI)2002/307 (https://ow.ly/
XmP450PWubq) updated SI2001/1004 (https://ow.ly/6Iki50PWufF) of the NICs regulations to say that NICs relief was also available for business mileage, based on the formula M*R (where M = number of business miles undertaken and R = rate of 45p).
| Professional in Payroll, Pensions and Reward | November 2023 | Issue 95 58
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