Employers should urgently review their mileage policies following a recent ruling by the Upper Tribunal of the Tax and Chancery Chamber.
The company, in this case, employed a number of staff who were expected to use their cars for business purposes. The company’s policy was to pay motoring expenses of 40p per mile to employees who were expected to travel less than 2,500 business miles per year and a lesser amount per mile plus a fixed lump sum to those who travelled more extensively.
The question the Upper Tribunal had to decide was whether national insurance was payable in respect of the lump sum payments. It was common ground that payments based on the mileage rates did not attract NICs.
The Upper Tribunal said that there was nothing to stop the company from making lump sum payments to its employees in respect of motoring expenditure. However, it held that unless the payments were actually linked to mileage they could not be classed as ‘relevant motoring expenditure’ for the purpose of the Social Security (Contributions) Regulations 2001, as amended.
The payments were made at a fixed flat rate, dependent on an employee’s grade, and did not vary by reference to the miles actually travelled. For this reason they could not be classed as ‘relevant motoring expenses’. They were, therefore, subject to national insurance contributions.
Case reference: The Commissioners for Her Majesty’s Revenue and Customs v Cheshire Employer and Skills Development Ltd (formerly Total People Ltd)
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