By Mike Moore, director in Deloitte's automotive team

Cheshire Employer and Skills Development’s (formally Total People) success at the Court of Appeal confirms that it is possible for employers to claim a NI refund from car allowance.

This is where the employee has been reimbursed an amount per mile for business mileage, less than the qualifying amount that can be paid free of NI.

This is currently the maximum Approved Mileage Allowance Payment (AMAP) of 45p.

Unfortunately the case did not provide any commentary on how you satisfy the conditions for a payment to be a qualifying amount free of NI. For income tax, a deduction can be made by reference to AMAP from taxed income.

However, for NI the qualifying amount can only be applied to relevant motoring expenditure, for example, where a car allowance is provided for the running of a privately-owned car.

An allowance to purchase a car or a general benefits allowance is not treated as relevant motoring expenditure and therefore the qualifying amount can’t be applied to them.

In addition when applying the qualifying amount, to calculate the NI free element of the car allowance, an employer has to consider the mileage reimbursement paid in the same pay period as the car allowance.

It can’t be calculated based on the tax year unlike tax deductions for AMAP.

Employers should take immediate action if they have not already submitted refund claims.

Retrospective reclaims for NI are restricted to six tax years, so employers who wish to claim a refund for the 2006/07 tax year will need to submit their request, with appropriate details, before April 6, 2013.

HMRC is likely to scrutinise refund claims to ensure the car allowances in question satisfy the NI legislation and care should be taken over the detail provided with the refund request.

For the current and future tax years, employers should consider appropriate restructuring of their current car allowance arrangements and consider applying the NI relief in real time.

This would deliver saving to both the employer and their employees at the time payments are made, throughout the year, without the need to rely on making a claim acceptable to HMRC.

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