The new tax year is fast approaching, and subject to the government’s National Insurance Contributions bill receiving the final royal assent, we will have a new rate of employers National Insurance Contributions (“NIC”) of 15% taking effect for payroll periods commencing April 2025. Here is one potential action employers could undertake to mitigate the effects of this increase.
Check you’re not overpaying NIC on car allowances – HMRC’s new guidance
The recent Upper Tribunal (UT) decisions in the Laing O’Rourke and Willmott Dixon cases mean that, in certain circumstances, employers can reclaim NIC paid on employee car allowances if they reimbursed business mileage at a rate of less than 45p per mile. For some employers, these reclaims may be substantial.
There are steps to follow, but HMRC has published guidelines on how a reclaim can be made via payroll for historic periods.
Even if a reclaim is not possible, employers should consider reviewing their payroll setup to ensure NIC is not deducted incorrectly from car allowances from April 25.
What could I do now?
- Check if employees who are paid a car allowance claim business mileage below 45p per mile.
- If the above applies, check if, due to their contract or other documentation, they are required to fund a private vehicle to use for business purposes.
- If both 1 and 2 apply, then you may be able to make a reclaim to HMRC for employee and employer NIC overpaid for historic tax years. Speak to your local BHP contact to determine the extent to which you could make a reclaim/how much this could be.
- If both 1 and 2 apply, consider amending payroll controls to ensure you don’t overpay NIC from April 25. The controls required will depend on when employees undertake business mileage during the year, so it is essential to seek professional tax advice.
For other potential actions employers could undertake to mitigate the National Insurance increases, read this blog.
For more information, please contact Kyle Newton, Tax Partner.
