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Mileage reimbursements may qualify for tax repayments

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Companies who have paid, or continue to pay, their employees a car allowance when they use their own cars on company business could be eligible for a ‘windfall’ repayment from the Government for overpayment of National Insurance.

The ruling in a case brought by Total People against HMRC means companies that paid grey fleet drivers an allowance and then reimbursed their mileage at below the Government AMAP rate of 40p per mile for the first 10,000 miles and then 25p for every mile thereafter could claim NI payments back.

Total People accounted for NI contributions on the car allowance payments, but then applied for repayment as the payments were not ‘earnings’ but were reimbursements covering motoring expenditure, which are not liable to NI.

The case ruled that where mileage payments were made to employees at below the approved rate they were a ‘reimbursement’ rather than an ‘earning’, and so were not subject to employers’ NI.

It is believed that many companies will have paid NI on such reimbursements.

Tax experts at Deloitte said the case is generating huge interest.

“The opportunity arises if you have at any time over the past six years paid a car allowance to your employees for use of their private vehicles - not company vehicles - and you have paid a mileage payment at less than 40p per mile - a fairly common scenario,” explained Dan Rees, manager of automotive tax at Deloitte. 

He warns that to qualify, companies will require a thorough review of policies and contractual documentation relating to car allowances and mileage payments.

While it is expected that HMRC will appeal the decision, tax experts are advising companies to act now.

“It is important employers appreciate the circumstances before pursuing a claim and take the appropriate tax advice,” says Alastair Kendrick, director of employment tax services at Mazars.

Claims can only be made going back six tax years.  Employers who made claims which were blocked by HMRC previously, may also be able to re-open them.

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