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Comment: 10-year wait comes to an end. Or does it?

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John Messore and Peter Moroz, managing directors at Innovation Professional Services, comment on the recent judgement in the case of Laing O’Rourke Services Ltd (Laing) v HMRC and what it means for fleet NIC reclaims.

John Messore, joint managing director of Innovation Tax and Mileage Consulting Ltd

In 2012 the Cheshire Employment and Skills Development Ltd v HMRC Court of Appeal case upheld the earlier Total People Ltd v HRMC [2010] decision that drivers using their own cars were entitled to NIC relief on their business mileage as well as income tax relief via AMAPS, where they had been paid business mileage at less than the AMAPS rate.

Over 250 large corporates submitted protective claims along similar lines and for over 10 years the UK tax world was waiting for another test case to clarify the interpretation of the NIC regulations, as this could be extremely advantageous for many employers as well as employees – indeed anyone driving their own car for work.

The first of a number of cases on the issue was heard in February and although not binding on other companies, with one notable exception, the Judge’s verdict was released in early June. The case was Laing O’Rourke Services Ltd (Laing) v HMRC and unfortunately the taxpayer lost that case.

The crux of the case was that Laing had not sufficiently demonstrated that the car allowances paid were in respect of the use the employee’s car and therefore did not fall into the definition of Relevant Motoring Expenditure (RME). The case was focussed on the factual evidence which was available as to the purpose and nature of the car allowance. The judge said that the burden of proof lay with the Laing and if they had been able to show that the car allowance was a payment made in respect of the use of the car then NIC relating to the business mileage element would have been due back to the company.

The three-day trial was finely balanced and close and so almost certainly Laing will appeal. We have spoken with several different barristers over the years who all said that in most instances a car allowance is demonstrably a payment for the use of a personal car and so has to be an RME.

Another major company will be heard at Tribunal later in the year and it will be interesting to see whether the same verdict will apply. For the time being we continue to have uncertainty.

Companies still have little to lose and everything to gain by either submitting protective claims or holding on to the claims they already have in place. We even know individual drivers who have submitted their own claims

As the judge said, “there are numerous boundaries and distinctions in the income tax legislation and in particular, in the treatment of pay and benefits provided to employees. Simply because a particular result can be achieved in one way does not mean that the provision of something economically similar in many respects results in even the same income tax treatment”. Broadly speaking this translates to, “If you make subtle changes to how you pay people for their mileage, it can have a profound impact on the tax or NIC treatment”.

Therefore it is worth talking with the relevant experts in this area about how to start saving straight away, notwithstanding that the above refund appeal was unsuccessful.

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