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It’s always important to look for ways to optimise your business finances and reduce any unnecessary costs, especially in the current climate.
Business owners will be very aware of the increases in employers’ national insurance contributions (NICs) from April 2025 and the increased cost of employing staff.
This article focuses on one often-overlooked opportunity for businesses to claw back some of this money. There may be potential to claim NIC refunds and it could save your business thousands of pounds. It could be sitting within your employee car allowance arrangements.
Tax cases highlight a legal precedent
This opportunity came to light after two recent tax tribunal cases (Laing O’Rourke vs HMRC and Willmott Dixon vs HMRC), which have created an important precedent for businesses. In both cases, employers offering their employees a choice between a company car or car allowance were able to successfully argue that they were entitled to NIC relief on certain portions of these payments.
The Upper Tribunal ruled in favour of the taxpayers, and HMRC has confirmed it will not appeal these decisions. This now opens a significant opportunity for businesses who have similar arrangements in place.
How the NIC refund process works
If your business meets the following conditions, you may be eligible for a NIC refund:
- You provide car allowances to employees who use their personal vehicles for business journeys;
- You reimburse the business mileage but at a lower rate than HMRC’s approved rates (currently 45p per mile for the first 10,000 miles, and 25p thereafter);
- Car allowance payments made to employees have been subject to tax and class 1 NIC through the payroll.
If a refund is due, this is calculated based on the “qualifying amount” – the difference between HMRC’s approved mileage rate and your actual reimbursement rate.
Importantly, it is also possible to back-date claims by six years – provided you have the right documentation.
How big an NIC refund could be due?
Consider this example to highlight how much NIC you might recoup:
Your company reimburses employees at 30p per mile;
HMRC’s approved rate is 45p per mile for the first 10,000 miles;
The eligible refund is 15p per mile (45p – 30p).
For a single employee driving 10,000 business miles annually, this represents a potential NIC refund to the business of over £200.
If you employ 10 employees and can make claims going back the full six years, the refund could be a few thousand pounds.
Another bonus is that employees can also benefit and may be eligible for individual refunds.
Exceptions to be aware of
There are two exceptions to this opportunity.
- Car allowance payments made through salary sacrifice schemes on or after April 6, 2018 do not qualify for NIC relief.
- If employees were allocated company fuel cards to use with personal vehicles, claims may still be possible but will need to be made differently.
How to get your NIC refund
If you meet the eligibility criteria and wish to pursue a claim, you will need to produce detailed records showing how much has been paid in car allowances, tax, and NICs per employee and the relevant mileage claimed. This must also include proof that the mileage reimbursement was below HMRC’s approved rates.
Now that employers’ national insurance rates have increased, it’s important to ensure you are not overpaying when you could be eligible for a refund. With the proper approach and documentation, you could recover substantial costs while ensuring compliance with tax regulations.
If you would like to engage us to support you with a NIC refund claim, contact us via partners@rjp.co.uk.
