The clock is ticking for fleets that wish to register a claim against HMRC for tax relief from national insurance payments paid on car allowances in 2017-18.

Companies can only submit a claim for the current tax year plus the previous six and, with the deadline of April 5 fast approaching, fleets are being urged to register protective claims now.

It follows a court ruling last year, which found HMRC had wrongly refused relief for two businesses Wilmott Dixon and Laing O’Rouke.  

They successfully argued that car allowance payments made to its employees were ‘relevant motoring expenditure’ and therefore should qualify for relief from Class 1 National Insurance Contributions (NICs).

Both cases were heard together. Laing O’Rourke was appealing an earlier decision which had ruled in favour of HMRC, while the UK’s tax authority was appealing a previous ruling in favour of Wilmott Dixon being able to claim the relief.

After considering the evidence, two judges in the UK’s Upper Tribunal ruled in favour of the employers. 

HMRC confirmed in August it would not be appealing the court’s decision, leaving it having to repay Laing O’Rourke £2.2 million in NICs from tax years 2004/05 to 2017/18 alone, and open to other claims.

John Messore, from Innovation Professional Services who represented Willmott Dixon, told Fleet News: “My advice to everyone is get those protective claims in now – this week. The detailed reclaim calculation can follow later.”

Messore, who has specialised in this area for the past 18 years, explained that once a protective claim has been submitted, HMRC will send out a standard reply from an employment duties tax specialist, acknowledging its receipt and that following the receipt of computations, they will start their review.

“There is virtually nothing to lose and everything to gain by making a claim now,” he said.

History of grey fleet claim

Both the Wilmott Dixon and Laing O’Rouke cases followed the landmark Total People tax ruling from more than 10 years ago, when HMRC lost a case at the Court of Appeal involving grey fleet mileage claims.

Total People’s long-running legal battle related to an NI refund claim based on the difference between the HMRC 40p per mile (ppm) approved mileage allowance payment (AMAP) rate (now 45p) and the 12ppm paid by the employer plus an additional lump sum paid to the employees for using their private cars on business.

The value of the amount claimed was approximately £146,000 or around £1,000 per employee, which was subsequently paid by HMRC.

In what was the first test case following the Total People ruling, Laing O’Rourke argued in a First Tier Tribunal, two years ago, that its car allowance scheme should also qualify for relief from NICs. 

HMRC argued that relief did not apply, because the payments could not be defined as relevant motoring expenditure. The court agreed, ruling in favour of HMRC. 

Hearing Laing O'Rourke's appeal in the Upper Tribunal, however, two judges decided that the previous judge had “erred in adopting a narrow definition” of relevant motoring expenditure.

As a result, they allowed Laing O’Rourke's appeal, ruling the company was entitled to repayment of NICs paid in relation to car allowances.

In the case of Willmott Dixon, the judges also dismissed HMRC’s appeal. The company had previously argued that car allowance payments made to its employees were relevant motoring expenditure and should qualify for relief. 

HMRC had refused to refund Willmott Dixon for NICs paid from 2004/05 to May 2014 relating to car allowance payments made by the firm.

It argued that the car allowances were earnings and not relevant motoring expenditure, but in what was a landmark ruling for fleets, the First Tier Tribunal ruled in favour of Willmott Dixon. 

Last year’s ruling agreed with that original decision and also found in favour of Lang O’Rourke.

Paul Hollick, chair of trade body the Association of Fleet Professionals (AFP), believes that fleets which have a similar profile to these businesses should investigate whether they have a case.

He told a recent Fleet News at 10: “You need the right conditions to be able to make a claim. You also need a specialist involved.

“The big four are offering advice at the moment, but there are also tax specialists in our industry as well able to offer advice.”

He explained: “There are some nuances in contract employment about what the car allowance is, and how it’s written, so you need to make sure it's done properly.”