HM Revenue and Customs (HMRC) has overturned a first-tier tribunal decision that found business motoring allowances paid to staff at training firm Total People were exempt from national insurance contributions (NIC).
The case, from August 2010, concerned whether the NIC relief for business travel could be used, not only on a mileage rate, but on a lump-sum car allowance.
Total People, which is now known as Cheshire Employer and Skills Development, paid motoring expenses as a rate per mile of about 40p or at a lower rate per mile of around 11 or 12p, plus an annual lump-sum car allowance payable in monthly instalments.
It argued that the lump-sum payments were part of the mileage allowance and therefore exempt from NIC, as they did not exceed the statutory 40p/25p limits.
Alastair Kendrick, director at MacIntyre Hudson, said the car allowance was not a relevant motoring expense and therefore the specific relief could not be offset.
He added: “The policy was wrongly structured. Whoever advised the organisation did not understand the tax and NIC rules.
“It believed it had an exemption but it was never going to be successful because of the way the legislation is drafted. In effect, it was getting a reduction on the NIC that was due on those workers.
“It was quite bizarre that it got accepted in the lower court. However, on appeal, there seems to have been a robust technical analysis of the position.”
Total People has declined to comment.
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