Legal precedent set for fleet NIC refund claims?
Most fleet decision-makers will probably not have heard of Total People (now Cheshire Employer and Skills Development Limited) before they started their epic battle against HMRC several years ago but the company could hold major significance for fleets from now on, following a tax ruling made at the Court of Appeal last month.
Total People’s claim is based upon the car allowance payments made by the training firm to around 160 members of staff using private cars on business.
Under the AMAP rules in place at the time, Total People could have paid 40ppm (now 45ppm) for business mileage.
However about 160 members of staff were being paid 12-13ppm through expenses plus an additional car allowance, which was paid by way of a fixed monthly amount in addition to their salary. This was meant to cover motoring costs, including business motoring costs, and basically cover wear and tear and depreciation, etc.
Total People argued that as the payments were made to employees in recognition of the fact that their job required them to use their car for business, they must be payments of Relevant Motoring Expenditure (RME) and therefore exempt from NIC as they were in line with the AMAP rules at the time.
In August 2010, the first tier tribunal judge ruled that car allowance payments were indeed RME and not earnings because they were made for business use of the cars and did not go up in line with normal pay, and so could not be called normal pay or normal earnings.
He said the company could therefore go back and claim a refund of £146,000 based on the difference between the rate of mileage paid and the maximum that could have been paid.
However, HMRC said that NI payments were due on the lump sum payments and subsequently appealed to the Tax Upper Tribunal.
The Upper Tribunal judge said that to be a relevant motoring expense, and so benefit from the NIC saving, there had to be a linkage between the number of business miles driven and the amount of the car allowance. He inferred that the car allowance had to vary depending on business mileage and not just grade.
As a result, he overturned the first case and decided the appeal in favour of HMRC.
However, not content with this judgment, Total People has appealed, with the Court of Appeal having restored the finding of the first-tier tax tribunal in August 2010 in favour of Total People.
The Lord Justice of Appeal, Lord Etherton, said that ‘critically, it (the FTT) found as facts that the scheme was a bona fide scheme, that the lump sum element was designed precisely in order to prevent staff making a personal profit by maximising their travel on a 40p per mile basis’ and that the FTT was fully entitled to conclude that “the lump sum payments were not earnings'.
What does this mean for fleets?
The experts’ views
According to Grant Thornton UK LLP – which has fought the refund claim on behalf of Total People for seven years, a potential NIC refund could be due to employers and to their employees if they:
• Pay a business mileage payment less than 40p per mile.
• Pay a lump car sum allowance to employees for the use of their own private vehicles.
• Have retained records to verify the business mileage.
• There is no direct link between the lump sum car allowance and salary.
Deloitte also said that the appeal could be used to benefit both fleets and fleet drivers.
Mike Moore of Deloitte’s Car Consulting Team commented: ‘The case noted that a broad brush approach can be used to work out the allowance to be paid as long as regard is given to the possible expenditure.
‘We recommend that employers submit new NIC repayment claims without delay. Today’s judgment also presents a number of opportunities to structure the design of car allowances favourably for both employers and employees.’
However, Jeff Whitcombe, director at BCF Wessex Consultants, cautioned fleets not to raise their hopes too much, saying: ‘Firstly, we have yet to learn whether HMRC will appeal the decision of the Court of Appeal. Secondly, the facts of the case were quite specific and HMRC is likely to rigorously review any claims it receives and ensure that the facts are the same; I’m already aware of some claims that have been refused. Thirdly, there is a significant backlog of claims that HMRC has to deal with.’
‘The decision of the Court of Appeal, ie to re-instate the First-tier Tribunal decision, does not form a legal precedent.
‘HMRC does not intend to make repayments to any other customers based on the outcome of this case.
‘HMRC considers that taking a similar case now, it would be likely to succeed.’