Car allowances – could you claim back national insurance?

In Total People Limited v HMRC, the taxpayer successfully argued that a car allowance paid to employees to fund the use of their own vehicle where mileage payments were less than HMRCs approved maximum NI free amount (40p/mile up to 10,000 miles/year and 25p/mile thereafter) should not be subject to employers NI.

For example, consider an employee travelling 800 business miles per month (9,600 miles/year) receiving a fixed car allowance of £250 per month (£3,000/year) which has been subjected to NI in full. Fuel is reimbursed by the employer at 10p per mile (free of NI). As the employer was entitled to pay 40p/mile tax free but has only paid out 10p/mile in this way, 30p/mile of the car allowance could have been paid without being subjected to NI, equivalent to £2,880 of the allowance. The Tribunal agreed on the facts of this case.

Taking the above example and assuming a claim were successful, employers NI of £369 (£2,880 x 12.8%) could be reclaimed per employee per year. If this were multiplied over a number of employees and over up to 6 years, there could be significant tax savings.

Furthermore, the employee should be able to reclaim employees NI, which would have been charged at up to £317 each per year based on our example (£2,880 x 11%).

If you think you may be entitled to a reclaim of NI on this basis, please contact your local office to discuss the next steps you might take, or to help you with the calculations necessary to progress your claim. Alternatively, email your enquiry.