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Employers can claim NIC refunds in some cases where employees have a car allowance to use their own vehicles for business journeys.
29 April 2025
Employers can claim NIC refunds in some cases where employees have a car allowance to use their own vehicles for business journeys.
With the recent increase in employers' National insurance, it is more imperative than ever that businesses do not overpay national insurance.
Where your business provides car allowances to employees, but reimburse business mileage at a lower rate than the HM Revenue & Customs approved rates, it may be possible to reclaim national insurance on the difference.
This has resulted from two Tribunal cases: Laing O’Rourke and Willmott Dixon.
In both of these cases, employees could choose between a company car or a car allowance.
Where the employees chose the car allowance, they were required to maintain a private vehicle for business use, but there was no requirement for them to spend the allowance on actual motoring expenses.
As a result, the employers regarded the car allowance payments as “relevant motoring expenditure”, which qualified for NIC relief on the “qualifying amount”. This was regarded as the allowed mileage payment (45p per business mile) less any business mileage reimbursed.
The Upper Tribunal found in favour of the taxpayer, and HMRC has since confirmed that it is not appealing the decision.
Therefore, it is possible for employers to claim NIC refunds where employees have a car allowance, have used their own personal vehicles for business journeys and have not been fully reimbursed for business mileage at the approved rates.
However, in order to make the claim, detailed data needs to be retained (including the total number of business miles performed in a tax year). Where records have been retained, it is possible to claim a refund for the prior six years.
This could therefore be relevant where employers are reimbursing business miles at a rate of below the standard 45p (or 25p if over 10,000 business miles have been incurred).
Example
An employer is reimbursing at a rate of 30p per mile to employees who are receiving a car allowance.
For the first 10,000 miles they drive, they are eligible for a refund of 15p per mile (45p - 30p).
If the employee incurred the full 10,000 miles, then the refund could be just over £200. If there are 50 employees and the claim could go back the full 6 years, this refund could be just over £62,000.
There is also an associated claim for employees, assuming they were paying 12% NIC historically, following the above example, each individual could receive a refund of £180 per year.
It is also worth considering making a claim for Class 1A NIC where total mileage was reported on a Form P11D. This may be the case where a fuel card was provided to an employee with a personal vehicle.
Please note that car allowance payments made under an optional remuneration scheme on or after 6 April 2018 will not qualify for NI relief.
In order to secure your claim, you need to ensure you have:
Given the increase to Employers NIC this could be a great opportunity to explore. If you would like to discuss this further, please contact your usual Bishop Fleming contact or one of our Employment Taxes specialists.
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