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Could you be due a national insurance refund on car allowances?

Do the following criteria apply, and could you be due a refund of employer’s national insurance (NI) and your employees due a refund of employee’s NI?

  • Do you pay your employees a car allowance to undertake business mileage in their own car? and
  • Do you reimburse business mileage at less than HMRC’s approved mileage rate of 45p?

If you do, then read on, as time may be limited to claim earlier years’ refunds.

The recent ruling by the Upper Tribunal in the cases of Laing O’Rourke v HMRC and HMRC v Willmott Dixon has significant implications for employers offering car allowances to their employees instead of company cars.


The cases involved construction companies that allowed employees to choose between a car allowance and a company car. If the employees chose to receive the allowance, they had to provide a suitable car for business purposes, but there were no specific directions on how the allowance should be spent. The companies treated the car allowance payments as taxable earnings and importantly, employees at both companies claimed business mileage at rates lower than HMRC-approved rates.

The employers argued that the car allowances qualified as relevant motoring expenditure (RME) for national insurance contributions (NIC) purposes, and that the qualifying amounts of RME were exempt from NIC. Both employers sought substantial NIC refunds that were initially denied by HMRC, and subsequently the case went to the First Tier Tribunal (FTT) followed by the Upper Tribunal (UT) for resolution.

Upper Tribunal decision

The UT, in a judgement issued on 10 July 2023, sided with the employers stating that their car allowances indeed qualified as RME, and consequently, the qualifying amounts (QAs) were not subject to NIC. Their decision is seen as a binding precedent and could therefore impact similar employers.

This means that employers in similar situations to Laing O’Rourke and Willmott Dixon (where employees paid tax and NIC on the allowances, used the cars partly for business, but weren’t paid the full 45p per business mile) could potentially seek refunds of both employers’ and employees’ NIC from HMRC for up to six tax years if their employees undertake business mileage and the car allowances represent RME.

What should you do now?

HMRC have approximately 30 days to appeal the UT decision. If an appeal happens, the case could take a year or more to be reheard in the Court of Appeal. Affected employers looking for refunds might need to wait for this process to conclude before receiving any refunds. It is also anticipated that the government might consider changing legislation in this area in the upcoming Autumn Statement. For now, employers in this situation are advised to consider filing protective claims to secure the possibility of NIC refunds for the payments detailed above.

In summary, the UT’s decision offers a precedent for employers to potentially claim NICs refunds for car allowances paid to employees who use their own cars for business purposes and are paid less than the HMRC-approved rates for mileage.

If you require any further information or advice on this matter, please contact our Employer Solutions team, who would be happy to help.

FEATURING: Joe Rowsell
Joe joined the firm in August 2022 as a manager within the Employer Solutions team. He started his career at HMRC in 2003, working initially… read more
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