HMRC loses £3.6m company car tax appeal

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The Upper Tribunal has allowed a joint appeal by two major construction companies for national insurance contributions (NICs) relief totalling £3.6m for the treatment of company car allowances

Laing O’Rourke Services Limited and Willmott Dixon Holdings Limited appealed against a First Tier Tribunal (FTT) decision that ruled they were not entitled to repayment of National Insurance contributions (NICs).

The two appeals were heard together as they raised similar issues about liability for Class 1 NICs on the payment of certain company car allowances to employees, with an accumulated total of £3,698,948 being claimed through repayments in NICs, split between a claim for £2.2m by Laing and £1.4m by Willmott Dixon.

Over a 10-year period from 2004, the two construction giants operated car allowance schemes, which allowed certain employees to have a company car based on their business needs.

Laing had inherited the scheme following the acquisition of Laing Construction in 2001. Willmott paid a car allowance to employees on a grade which was allocated to each employee. The grade was allocated depending on the seniority of the employee, not the number of business miles driven.

For Laing, HMRC denied its claim for reimbursement of secondary NICs on payments made to their employees for the use of employee-owned vehicles from 2004-10.

This later led to the company submitting a notice of appeal to the FTT in September 2019, where it sought the repayment of £2.24m in NICs.

In its appeal, Laing claimed that an amount of the payments given to staff should not be subject to NICs.

However, HMRC argued that the exemption did not apply because the payments could not be defined as a relevant motoring expenditure (RME).

A payment is classed as RME when its mileage allowance payment falls within the meaning of the approved mileage allowance payments (AMAPs) scheme for tax purposes, or it would be such a payment but for the fact that it has been paid to another for the benefit of the employee.

HMRC appealed against the FTT’s decision arguing that the tribunal had ‘erred’ in its interpretation of regulation 22A and paragraph 7A – which were the key provisions of both cases.

Regulation 22A of the 2001 Regulations provides for certain amounts which would not otherwise be earnings to be treated as earnings in connection with the use of qualifying vehicles, which includes cars.

The tribunal focused on the purpose of the amendments in regulation 22A and paragraph 7A. It made clear that the amendments were intended to provide for a ‘fair reimbursement’ for car use, to make claims for car relief easier to administer, and to allow closer alignment of tax and NICs.

The appellants argued that the intention of parliament in enacting regulation 22A and para 7A was to remove the need to consider whether or not a payment is earnings.

They emphasised that each of the payments that were subject to the claim in the appeal was made in respect of an employee who did use their vehicle for business travel and was therefore eligible for the qualifying amount. They argued that the FTT appeared to have ‘lost sight’ of this important fact.

Justice Michael Green said: ‘We agree that the FTT appears to have overlooked the fact that the claim by Laing was made only in respect of payments to employees who undertook business mileage. We do not consider that the fact that a payment was made to other employees who did no business mileage should affect the nature of the payment made to those that did.

‘We consider that the FTT was right to say that use is the determining factor in identifying a payment of RME. However, we consider that the FTT was wrong to say that payment for expected or anticipated use is not RME.

‘We conclude in relation to the Laing appeal that the FTT erred in adopting a narrow definition of RME and allow Laing’s appeal in this respect and set aside the FTT’s decision.’

On the Willmott appeal, the ruling stated that ‘the short point is that the car allowances were not “specific and distinct” payments of expenses actually incurred by employees. They were round sum allowances paid to certain grades of employees irrespective of whether expenditure was actually incurred’.

The joint appeal was dismissed.

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