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Does your company offer a car allowance scheme? Why a landmark HMRC case could now mean you’re due a refund.

Does your company offer a car allowance scheme for employees using a personal car for business purposes?

Why a landmark HMRC case could now mean you’re due a refund

In Laing O’Rourke Services Ltd (“Laing”) / Willmott Dixon Holdings Ltd (“Wilmott”) v HMRC – [2023] UKUT 00155 (TCC), judges of the Upper Tribunal have upheld claims from two separate, major construction businesses, regarding payments of Class 1 National Insurance (NI) contributions on company car allowances.

The case is largely significant because HMRC has so far declined to appeal, opening the door for claims by companies for NI refunds going back at least six years.


For many years, each of the appellant companies operated a company car scheme for its employees, as well as allowing for business mileage claims.  Under the scheme, employees were permitted a choice of a company car or cash allowance.

The companies brought action against HMRC for Class 1 NI levies paid on car allowances under the schemes, on the basis that the allowance was a Relevant Motoring Expenditure (RME) within Regulation 22A of the Social Security (Contributions) Regulations 2001 , and therefore falls outside the scope of NI.

On considering the definition of RME, the judges found that the primary concern is whether the allowance is paid by the employer to the employee with respect to the use of an employee’s personal vehicle.  ‘Use’ can include expected use, potential use or availability for use.  Regardless of the amount of the allowance or how the employee chooses to spend it, if it qualifies as RME then the payment is eligible for relief against NI.

The judges found that the car allowance schemes did fall within the definition of RME, and therefore HMRC should refund the NI contributions paid on the allowances for thousands of employees over a number of years. The sums aren’t insignificant, and are expected to be in the region of £4M alone for the two construction companies party to the case.

Our analysis

The impact of the judgment on employers and employees in company car schemes in the UK is significant.   Until another case overturns the judgment in the Upper Tribunal, it stands as binding principle.

For employers, there is an immediate right to claim for a refund of NI levies paid for car allowances provided to employees going back six years (the maximum under NI regulations), but in some cases this may be extended.

If you are an employer operating a car allowance scheme, you should urgently consider making a protective claim for the amount of NI contributions paid.  This is a complex area and professional advice and is strongly recommended to ensure accurate calculations are made, and to lodge a valid claim.

For employees, NI levies are paid by your employer so you do not need to make a protective claim; however, the case highlights that car allowance schemes are highly complex for tax calculations and reliefs.  Employees should examine whether they are paying the correct amount of tax, or have claimed all tax reliefs to which they are entitled.  In particular, anyone who is a higher rate taxpayer should make sure to claim for additional tax relief through their self-assessment tax return each year, to avoid missing out on 20p or 25p in every pound in eligible tax relief. 

For employers:  To start a protective claim or for more information, we are delighted to introduce our tax colleagues at Mazars LLP.  To find out whether you can reclaim NIC contributions for your company, please fill in our short questionnaire.  A member of the team will be in touch to help.  

For employees:  We are delighted to introduce our tax colleagues at Mazars LLP.  For help with claiming tax relief or for a general health check on your tax position, please don’t hesitate to contact us.  We will put you in touch with an expert from the team.

Any tax advice given by our tax colleagues at Mazars LLP is not authorised or regulated by the Financial Conduct Authority (FCA).

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