HMRC has won on appeal a case brought by Cheshire Employer and Skills Development Limited (CESDL), formerly Total People Ltd, which claimed that it had overpaid Class 1 National Insurance contributions between 2002 and 2006 amounting to £146,000.
In the original case CESDL stated that NIC’s should not have become payable on cash sums paid to drivers for the business use of their private cars and a refund is due. HMRC suggested that the NIC’s were accounted for correctly and that no refund is due.
In the original appeal found in favour of CESDL, however the recent decision has overturned that judgement saying that in the original appeal the tribunal asked itself the wrong question and therefore came to the wrong conclusion.
The first tier tribunal concluded that lump sum payments made were not ‘earnings’ because of their lack of link to salary increases and pension contributions, therefore there was nothing to suggest that NIC’s should be due on these.
The second tribunal does not challenge this but states the case that there was also nothing to suggest that these payments were for ‘Relevant Motoring Expenditure’, within the meaning of the reg 22A(3) which requires that the payment is a “mileage allowance payment”; there being no link to the actual mileage travelled. Hence the conclusion that the first tribunal had asked the wrong question and therefore come to the wrong conclusion.
Although on scrutiny of the legislation it is fairly obvious that there are technical points within this type of legislation that can be raised to challenge the type of payments made to employees and the relevant tax implications, as in this case, it is clear from this ruling that the legislation has carefully been drafted to be quite specific about what constitutes ‘motoring expenditure’ and the direct settlement of that.
It is also worth bearing in mind that if this case had succeeded, the cost to HMRC and therefore us, the tax payers, would have been immense, as as every ‘cash for car’ scheme operative clambered to reclaim NIC’s.
