Tribunal ruling on NICs for business motoring allowances

Image Creds: HMRC

Fleet managers who oversee ‘grey’ fleets on behalf of their employers should be aware of a recent tribunal ruling concerning NICs (National Insurance Contributions) for motoring allowances paid to business drivers.

Employees who are paid this allowance for the use of their private vehicles for business purposes will now need to demonstrate a clear link between the actual business use of the vehicle and any lump sum payments. This is to ensure that any payments for these private ‘grey’ fleet vehicles are classed as “relevant motoring expenditure” (RME) and exempt from NICs.

A key point arising from the tribunal was that an allowance linked directly to the acquisition or ownership of a vehicle would not be sufficient, on its own, to classify the payment as RME.

While this decision is subject to an appeals process, in its current form, the ruling would mean that where the link between the business and the usage of the vehicle cannot be established, the employer will be liable for Class 1 NICs on the motoring allowance payment.

Due to the complexities of managing ‘grey’ fleets, employers may wish to consider taking specialist advice on restructuring their car allowance provisions to ensure future NIC exemptions are secured. As demonstrated by the recent benefit in kind (BiK) taxation changes, this area of business motoring continues to be a focus for the government. Expert support can help businesses take advantage of available benefits, even as the tax regime evolves.

Further information on this tribunal and its wider implications for business car drivers can be found on the HMRC website.