According to TP’s advisers Grant Thornton, if employers pay a business mileage that is less than 40p a mile and have retained records to verify it, and they pay a lump-sum car allowance to employees using their own private cars which is not directly linked to salary, then they may be eligible for the refund.
TP, now known as Cheshire Employer and Skills Development, paid its employees lump-sum payments for the use of their own private car, which made up the difference between the 12p mileage rate they received from the company and the HMRC 40p-per-mile allowable rate.
HMRC challenged the car allowance scheme and sought to charge National Insurance Contributions on the lump sum. It argued that the allowance was not calculated by reference to actual miles travelled and therefore could not be treated as relevant motoring expenditure.
This argument was dismissed by the first tier tribunal (FTT) but allowed on appeal to the upper tribunal (UT) on the grounds that the FTT had made an error in law in arriving at its decision.
The Court of Appeal disagreed, ruling in favour of TP, which means that the FTT’s decision stands. The judges concluded that the tribunal had not made an error in law, so the UT had no jurisdiction to overturn its decision. Lord Etherton said that TP's “scheme for travelling allowances is not an abusive one” and that “critically, it (the FTT) found as facts that the scheme was a bona fide scheme, that the lump sum element was designed precisely in order to prevent staff making a personal profit by maximising their travel on a 40p-per-mile basis” and that the FTT was fully entitled to conclude that “the lump sum payments were not earnings”.
Grant Thornton’s Grant Summers who, together with Dave Jennings, provided the support for TP’s case, welcomed the judgement as a vindication of TP’s perseverance. “The court has re-reviewed this complex issue from first principles and reached a convincing conclusion to this long-running saga. Our client is obviously delighted with the result.”
As a consequence of the court’s decision, tax practitioners are advising employers to submit new NIC repayment claims without delay. As Mike Moore of Deloitte’s car consulting team pointed out, “The judgement is helpful for employers, as the practical constraints of devising a scheme which pays allowances to cover employees’ business expenses was taken into account. The case noted that a broad brush approach can be used to work out the allowance to be paid as long as regard is given to the possible expenditure.
“Today’s judgement also presents a number of opportunities to structure the design of car allowances favourably for both employers and employees,” he added.
However, MHA MacIntyre Hudson’s tax director Alastair Kendrick thinks that the importance of the case means that HMRC will not let the matter rest. “Given the legal process, there is a strong likelihood that HMRC will look to other cases to try to close down this loophole and succeed, to revise the National Insurance rules to support their view.
“Those who have not already done so may wish to make protective claims but there is nothing to be gained by doing so at this stage. We would recommend that employers wait to see what develops and, if an opportunity to make a claim does appear, proceed with it prior to 6 April 2013.”