A landmark court appeal has revealed what could be a game-changing era for businesses in terms of mileage reimbursement practices.
Training and recruitment specialist Cheshire Employer and Skills Development (formerly known as Total People) has won an appeal for National Insurance Contributions exemption after paying its staff less than the official AMAP rate.
The company’s car scheme saw employees receive a car allowance and a fuel reimbursement of 12 pence per mile when using their personal vehicles for business trips. Cheshire’s representatives claimed that the remaining 28ppm (of the Government’s approved 40ppm reimbursement rate) should qualify for a NIC exemption.
The company won its case for NIC exemption on 6 November, when the court ruled that car allowances were not classed as earning in first principles and that the 28ppm exemption from NIC was allowed.
Mike Moore, director at vehicle taxation specialist Deloitte Car Consulting, said: “The judgment is helpful for employers, as the practical constraints of devising a scheme that pays allowances to cover employees business expenses was taken into account.
“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. The judgment also presents a number of opportunities to structure the design of car allowances favourably for both employers and employees.
“The main point is that if an employer makes a reasonable attempt, then it is possible to apply the AMAP to that allowance.”
Deloitte said the facts that helped Cheshire’s case were the lack of a link between salary increases and increases in the car allowance, that the allowances were designed to do nothing more than reimburse employees’ costs when driving for business, and that only staff with high business miles were eligible for the scheme.
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