Payments to employees were "relevant motoring expenditure" and should be disregarded for the purposes of NICs

In Willmott Dixon Holdings Ltd v HMRC [2022] UKFTT 6 (TC) the First-tier Tribunal (FTT), held that payments to employees were "relevant motoring expenditure" (RME) and could be disregarded for the purposes of Class 1 National Insurance Contributions (NICs).

Background

Willmott Dixon Holdings Ltd (WDH) claimed a NICs refund for car allowance payments made to its employees during the period 2004 to 2014 (the Payments). HMRC refused the claim on the basis that car allowances were earnings (relying on section 3(1), Social Security Contributions and Benefits Act 1992 (SSCBA)). HMRC was of the view that none of the disregards contained in Schedule 3, Social Security (Contributions) Regulations 2001/1004 (the Regulations) applied and in particular, those in paragraphs 3, 7A and 9. 

WDH appealed HMRC's decision, on the basis that car allowances were not earnings, or alternatively, if they were earnings, at least one of the disregards applied.

FTT decision

The appeal was allowed.

The FTT (Judge Popplewell) held that the Payments were earnings. This was because the value of the Payments was not dependent on the number of business miles driven by an employee. Rather, the value of the Payments was dependent on the grade of the employee. Generally speaking, the more senior an employee, the higher the grade. This meant the Payments were liable to NICs, subject to the paragraph 7A disregard applying.

The FTT then had to decide whether the Payments were "relevant motoring expenses" (RME), within the meaning of Regulation 22A of the Regulations, because if the Payments were, they would only be chargeable to NICs so far as they exceeded the qualifying amount. 

The FTT considered limb (c) of the RME definition in Regulation 22A(3). In doing so, the FTT found that the taxpayer simply needed to demonstrate the car allowances were "payments in respect of the use by the employee of a qualifying vehicle", which WDH had done. This was achieved, "irrespective of the fact that the way in which the payments were made depended not on actual mileage but on the grading system". To receive the Payments an employee was obliged to have a private vehicle available for business use. In the view of the FTT, there was a clear, albeit indirect, nexus between the payments and business use.

The FTT concluded that the Payments were RME and the paragraph 7A disregard applied to the extent of the agreed qualifying amount. The Payments fell outside of the paragraphs 3 and 9 disregards as the nexus between the cost of busines mileage driven by each driver and the Payments was not sufficiently close.

Comment

This case offers some clarity on when employer car payments will be a qualifying amount, namely, when the allowances are relevant to motoring expenses. It consolidates the findings in Laing O’Rourke Services Ltd v HMRC [2021] UKFTT 0211, that car allowance payments made by the company to its employees were earnings and the paragraph 7A disregard could not be applied. In the instant case, the FTT reached the same conclusion (that allowances had to be RME for payments to be a qualifying amount), but it departed from Laing in finding the allowances were RME (such that the paragraph 7A disregard would apply). The taxpayer in Laing has been granted permission to appeal the FTT's decision to the Upper Tribunal, and the decision of the Upper Tribunal in that appeal will no doubt provide more definitive guidance.

The decision can be viewed here.