Dave Jennings is a senior manager in the tax team at Grant Thornton, the firm involved in the Total People case against HM Revenue and Customs.
What did the courts say?
Following a number of years of negotiations by Grant Summers and me with Her Majesty’s Revenue and Customs (HMRC) national insurance contributions (NICs) technical team, HMRC’s refusal to refund NICs was taken to the first-tier tax tribunal (FTT) in August 2010.
The issue concerns an NIC refund claim based on the difference between HMRC’s tax and NIC-free rates of 40p per business mile travelled by employees using their own cars and the 12p per mile paid by Total People. In addition to the 12p per mile, Total People also paid £300 per month to its training advisers, responsible for a large rural client base, for the business use of their cars. This figure was based on the average cost of using a Ford Mondeo for 7,500 business and 7,500 private miles. A small number of senior supervisors received £4,100 per annum and two directors £7,000 per annum. Total People deducted PAYE tax and NICs from the monthly allowance but not the mileage payment. Total People’s NICs repayment claim was based on the 28p per mile left within the allowable rates. Employees received tax refunds but HMRC refused Total People’s NICs claim.
At the FTT, the judge decided in favour of Total People that the monthly allowance was not earnings and allowed the repayment. HMRC appealed and the Upper Tribunal then agreed with HMRC that the allowance was not a relevant motoring expenditure and therefore earnings with no NIC refund due.
Total People appealed and the Court of Appeal has now decided that there was no error in law by the FTT and therefore the Upper Tribunal had no right to remake the decision. The FTT decision is now restored and the refund allowed.
Crucially, the court said that the allowance was not ‘obviously abusive’ and that ‘there is no doubt that … employees did incur expenditure for business travel in their cars’. HMRC argued the allowance was over generous, not linked to specific costs and employees could profit from this. However, the court allowed Total People’s appeal on the grounds that a broad brush approach is satisfactory and that the FTT evaluated the evidence before it and concluded that the allowance was not earnings.
How does this impact an employer and employees?
This decision means that providing there is evidence of a ‘genuine endeavour to produce an equivalence between the allowance and the expenditure and to apply with approximately equal justice to all’ an NIC refund claim should be accepted by HMRC. There should be no link to salary and the allowance should not be a reward. A claim can be made for all tax years from 6 April 2006 until 5 April 2013 when 2006/2007 will fall out of date under the six-year claim rule. Accurate employee business mileage records will be required and the claim should normally be calculated on a pay period basis.
As a result of this decision, HMRC is likely to issue a statement that this case was decided on its own specific facts and any other claim may be refused. However, it would appear difficult for HMRC to refuse a claim with similar facts to Total People. HMRC may also seek permission to appeal to the Supreme Court but this should be an uphill task.
