Opinion: Business insurance for personal cars

By John Messore, managing partner at Innovation

The question is can staff use private cars on business without taking out their own business insurance.  As someone who spent 13 years working in insurance the answer is ‘of course they can’.

Some insurers provide cover on a de minimis basis – e.g. they view anything up to 1,500 business miles a year as de minimis or incidental – but you must check with each individual insurer what their specific terms are.

For friends of mine who used to work for HMRC, there were two different mileage rates paid; a lower rate per mile for incidental business trips and a higher rate for staff who had to take out additional business cover and so who incurred more costs.

The other solution is that you can take out additional business insurance via the employer to cover those personal cars.

At a previous employer with a 600 corporate car fleet, we monitored business journeys undertaken by staff in their own cars. Say there were 730 days where staff used their own cars on business. That is equivalent to 2 x 365 days or the equivalent risk of two additional company cars.

So, with the knowledge and blessing of the insurer we added an extra two cars to our own corporate fleet and the insurer in return covered any risk associated with all private cars used on business journeys. Such a simple solution.

Another solution is of course short-term hire – as opposed to using your own car – since the cost may actually be cheaper e.g. a 400-mile round trip at 45p a mile is £180. How much would it cost for a one day business hire including the right insurance?

Others may ask ‘Do you need business insurance for your car allowance to be deemed an RME such that you can claim back NIC for prior years?’ – following the recent Laing and Willmott Upper Tribunal cases?  The answer is no.

Where a car allowance is paid but no business mileage is incurred, it is still an RME (Relevant Motoring Expenditure per the Laing O’Rourke/Willmott Dixon case).

If an employer does not insist on all staff on a car allowance taking out business cover that should not invalidate its RME claim for those drivers that do undertake business mileage.

Whilst duty of care is of course extremely important everyone forgets to mention the duty of care an employer has to deduct only the correct amount of NIC on its car allowance payments.

If an employer deducts too much NIC – particularly in the knowledge of the Willmott and Laing cases then they could be guilty of making unlawful deductions under S13 The Employment Rights Act 1996.

So before even worrying about insurance (important as it is) in my view at least first get the payroll deductions correct.

Given that virtually all car allowance are now deemed to be relevant motoring expenditure, then Reg 25 of SI2001/1004 mandates that relief be given in accordance with Schedule 3, and within Para 7A of Part VIII of that schedule it states that the employer must first disregard the QA (Miles x Rate – i.e. business miles x 45p) from all RME payments.