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Maximising Your Business Profits: Claiming NIC Refunds on Car Allowances

Ever wondered if you could get some of your National Insurance (NI) contributions back from HMRC? Well, you’re in luck because we’re diving into the world of NIC refunds on car allowances. Willmott Dixon recently pocketed a cool £1.47 million from HMRC for their NIC refund, so if you heard this in the news recently, we’re here to help you figure out how much your company can claim. Here’s our quick (yet essential) guide.

Can you get a NIC refunds on car allowances?

Before you get too excited, remember that HMRC tax breaks come with criteria. BUT, providing certain criteria are met, the answer to this question can be a yes!

Several high-profile cases have shown that taxpayers can win, so let’s look at the circumstances that can lead to NIC refunds on car allowances.

Does your business pay for mileage at less than the HMRC-approved rate?

Many employers provide their employees with a car allowance, which is essentially an extra payment on top of their regular salary to help them cover the costs of having their own personal vehicle, rather than being given a company car.

One significant distinction between using a car allowance and a company vehicle lies in how employers can reimburse employees for their business-related mileage, as per HMRC’s approved mileage allowance.

For personally owned vehicles, employers can reimburse employees at a rate of up to 45p per mile for the first 10,000 miles, or 25p per mile if the business mileage exceeds 10,000 miles. This reimbursement is both tax and NIC-free. (It’s worth noting that the rate remains at 45p per mile for NIC-free payments, regardless of the total miles travelled in a tax year.)

When employers reimburse their employees at rates lower than HMRC’s approved mileage rates, employees have always had the option to claim income tax relief on the difference by submitting a claim to HMRC, either through self-assessment or using form P87.

However, thanks to rulings like the Total People case, and more recent cases involving Laing and Willmott, there’s a possibility of seeking NIC refunds as well. These cases have opened up new opportunities for both employers and employees to benefit from NIC refunds in addition to income tax relief when business mileage rates fall below the HMRC-approved levels.

Key takeaways:

  • Car allowance is treated as additional salary, which means deductions for income tax, national insurance, and pension. 
  • This is a relief that applies to both employers and employee NI contributions, so employers, pay attention – you have an incentive to review this!   

How do you get your car allowance NIC-free?  

This is the bit that gets slightly complex. Car allowance is only NIC-free to the extent that it matches the HMRC-approved mileage allowance, which, as we said, is currently 45p per mile. So what does this mean?

If you don´t do any business mileage

If you have zero business miles upon which to claim the mileage allowance – then this doesn’t apply to you, and NIC is chargeable on your car allowance.

If your employer diligently pays a business miles allowance at the HMRC-approved rate

Then you are paid everything you are due, and NIC is due on your car allowance.

If you don´t get paid for business miles or get paid at less than the HMRC-approved mileage rate

Then you can get some or all of your car allowance paid NIC-free. That means you can get a refund from the taxman! 

But, of course, there’s a catch or two…

  • NI contributions for employees are payday cycle-dependent. So, it might require you to keep monthly records and workings to stay on top of things. 

However, employers can make an end-of-year adjustment each March if they haven’t done so previously. So this makes this a more user-friendly tax break than perhaps it looks at first.

Can you go back a few years and get a lovely big NIC-refund from the taxman?

Yes, you can go back a few years and claim up to four 4 years’ worth of NIC refunds. But, employers should take action to put in a protective claim with HMRC to make sure this is backdated as far as possible. 

If you´ve filed a protective claim with HMRC before, then you might hit the jackpot with up to 12 years’ worth of NIC refunds! However, the employer needs to maintain business mileage logs as evidence of miles driven and evidence of mileage amounts paid or not.

It’s your money, claim it!

Don’t let those NIC contributions slip through your fingers. With the right knowledge and a bit of paperwork, you can reclaim what’s rightfully yours. So, get ready to boost your business profits, one NIC refund at a time!

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