By way of an example to illustrate the principles and sums at stake, imagine you have 300 staff on a car allowance of £7,000 a year, which you will have taxed and paid NIC in full. However, those same employees drove 8,000 business miles on average each year and you paid them 12 pence per mile or £960 tax free through expenses.
In the case being appealed by HMRC it was said that you could have paid 40ppm tax free under the AMAPs rules i.e. £3,200 tax free.
Total People said that it had paid £3,200, but £960 was through expenses and the remaining balance of £2,240 was built into the £7,000 annual car allowance.
Therefore £2,240 had been subject to NIC in error and their claim was to get back Employer NIC on the £2,240 for the previous four years.
In practice go back six years which in our example would mean the company could benefit from six years x 12.8% NIC x £2,240 x 300 staff = £516,096 plus the possibility of interest on that.
As you can see from the calculations provided in the article, this could lead to a very nice amount of money coming back to your company. Conversely, it’s also a massive amount of money for the HMRC to pay out – it is said in the article to be as much as £1.032Billion. The Government could take steps to protect this by revising the laws or trying to deny any claims submitted retrospectively. The article, and RunYourCars.com, strongly encourages companies to submit their claims now.
Another important point from the article is
Whatever the outcome of the decision, companies need to ask themselves why they don’t split their car allowance into two elements, one being a business mileage top up to take the rate of mileage reimbursement up from, say, 13 or 14ppm to 45ppm tax and NIC free, along with a balancing taxable payment.
In gross terms you would be paying the same amount to staff, but now a percentage of it is tax and NIC free which not only saves the employer around £200 per head per annum, but also saves the staff around £600 per head per annum.
It is always sensible to take advice from professionals when dealing with complicated tax matters or financial terms when dealing with company cars. If you would like more details on this, or would like someone to talk to you about the best way to manage and save money on your Company Car Fleet, please contact the team at RunYourCars.com
Credit -Author of the Fleet News Article: John Messore
John Messore is a tax partner at Innovation LLP, a firm specialising in all matters relating to car taxation and fuel taxation. He also sits on a Chartered Institute of Tax technical sub-committee.