Willmott Dixon Wins Cash Allowance for Grey Fleet Claim Against HMRC
FTT Decides Car Allowance Payments Were Earnings With “Relevant Motoring Expenditure”.
In what is a landmark ruling for fleets, a First Tier Tribunal has ruled in favour of Leading Construction & Property firm Wilmott Dixon over car allowance payments for “grey fleet” vehicles in which payments were made to its employees.
Initially HMRC had refused to refund Willmott Dixon for NICs paid from 2004/05 to May 2014 relating to car allowance payments made by the firm.
However, the ruling means that the payments made to its employees were ‘relevant motoring expenditure’ and therefore should qualify for relief from Class 1 National Insurance Contributions (NICs).
Payments Based on Grade
Car allowances from Willmott Dixon, which was represented by Innovation Professional Services, were paid to employees based on a grade which was allocated to that employee.
This meant that the amount paid did not depend on the number of business miles driven by an employee, but rather their grade – based on seniority.
The actual business miles driven were reimbursed to an employee in the form of a separate business mileage payment.
Where an employee from a certain grade chose to select a car from a lower grade choice list, they could be reimbursed the difference in the car allowance for those grades.
Meanwhile, some individuals who drove no business miles were awarded a grade and allowances were paid even when an employee was ill (including long-term sick) or their business miles reduced because, for example, of the pandemic.
Use of the Car Allowance
The purpose of the car allowance was to ensure that an employee had a properly insured, maintained and reliable motor vehicle available for business use – defined broadly as a vehicle which could be used for performing his or her duties as an employee.
Furthermore, an employee who received the car allowance was obliged to have a fit and proper vehicle for business use. That didn’t mean however, that the employee HAD to use the car allowance for that purpose.
Where an employee didn’t have an adequate vehicle, Willmott Dixon expected the employee to use the allowance to acquire one. However, there was no contractual or obligation otherwise to use the allowance for this.
Similarly, where an employee was already in possession of a satisfactory vehicle, then Willmott Dixon anticipated that the allowance would be paid on the financing, maintenance and costs of insurance and any other ongoing costs. But again, there was no contractual or other obligation to do so.
The employee was free to decide on what they spent the car allowance, and it could be spent on something wholly unrelated to the vehicle or its use for business travel.
The court heard that Willmott Dixon undertook a “rigorous analysis” of the underlying data and set the level of the allowances on the basis that an employee did 10,000 business miles per year.
Their analysis revealed that such an employee would be in the same financial position whether they opted for the car allowance or chose a company car.
The Verdict – Car allowance payments were “relevant motoring expenditure”.
The FTT had to first decide whether the car allowance payments were earnings for NICs purposes or reimbursements of business expenses.
Given the amount of car allowance paid did not depend on the number of business miles driven by that particular employee, the FTT decided that the car allowance payments were earnings.
The key factor though is that also decided that the earnings were “relevant motoring expenditure” – citing the Court of Appeal decision in favour of Total People (now Cheshire Employment and Skills) almost 10 years ago on a similar matter.
At the same time, the verdict also contradicted a more recent decision involving Laing O’Rourke (LOR).
Total People’s had a long-running legal battle with HMRC in relation to an NI refund.
Their claim was based on the difference between the HMRC 40p per mile (ppm) approved mileage allowance payment (AMAP) rate (now 45p) and the 12ppm paid by the employer plus an additional lump sum paid to the employees for using their private cars on business.
The value of the amount claimed by Total People was approximately £146,000 which equated to £1,000 per employee. This was subsequently paid by HMRC.
Laing O’Rourke lost a £2.2 million claim for relief on grey fleet business mileage payments paid to employees at its firm.
Laing O’Rourke argued that its car allowance scheme should qualify for relief from NICs on payments made to employees.
HMRC said relief did not apply because the payments could not be defined as “relevant motoring expenditure.”
Judge Tracey Bowler reached a decision last July, ruling in favour of HMRC.
The Willmott Dixon Tribunal Verdict
It seems that being able to determine the expenses as “relevant motoring expenditure” was the crucial factor in the decision.
On reaching a decision in the Willmott Dixon case, Judge Nigel Popplewell said:
“I totally appreciate that the way in which these payments were made and the amounts of the payments were based not on actual business use but on grades, and those grades, in turn, did not reflect actual business use but seniority.
“A similar arrangement was in place in Laing O’Rourke and this was another reason why Judge Bowler thought that similar payments in that case to the car allowances in this, were not made in respect of use. I respectfully disagree.”
“The evidence shows that in order to receive the allowances an employee was obliged to have a private vehicle available for business use.”
Laing O’Rourke has appealed its FTT decision.
With regards to the FTT decision in the Willmott Dixon case, HMRC are yet to decide whether to appeal or not.
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