Laing O’Rourke Services Limited v The Commissioners for HMRC & Anor

For paragraph 7A of Part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001, the qualifying amount must form part of relevant motoring expenditure under regulation 22A. Regulation 22A(3)(c) is construed broadly. A payment may be in respect of the use of a qualifying vehicle where it relates to expected, potential, future or available business use. It need not reimburse expenditure actually incurred by the employee. Where an employee undertakes business mileage and is required to have a suitable vehicle available for business use, a grade-based car allowance may qualify. The employee’s freedom to spend the allowance, and the fact that other recipients undertook no business mileage, do not alter that analysis.

Two appeals concerned Class 1 National Insurance contributions on car allowances. Laing appealed the First-tier Tribunal’s dismissal of its claim for repayment of contributions relating to allowances paid between 2004–05 and 2017–18. HMRC appealed the First-tier Tribunal’s decision allowing Willmott’s claim concerning allowances paid between 2004–05 and 2014–15.

The appeals raised questions concerning the construction of regulation 22A and paragraph 7A of Part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001, and, in Willmott’s case, alternative disregards under paragraphs 3 and 9. The central issues were whether qualifying amount had to be relevant motoring expenditure and whether the allowances were payments in respect of the use of qualifying vehicles.

1. Paragraph 7A and qualifying amount. The appeals were determined on the basis that the qualifying amount under paragraph 7A must be part of a payment of relevant motoring expenditure under regulation 22A. Paragraph 7A refers to a payment, not merely to the numerical amount produced by the regulation 22A(4) formula. The statutory heading and the Explanatory Notes supported that construction.
2. Meaning of relevant motoring expenditure. Regulation 22A(3)(a) concerns mileage allowance payments within section 229(2) of the Income Tax (Earnings and Pensions) Act 2003, which are payments for expenses related to business use. Laing’s allowances did not fall within that provision because they were paid regardless of expenditure incurred.
3. Regulation 22A(3)(c), however, uses broad language. A payment may be made in respect of use without reimbursing expenditure actually incurred by the employee. The provision may encompass expected, potential, future or available use. Where employees undertook business mileage and were required to have a reliable vehicle available for business use, Laing’s allowances were relevant motoring expenditure. The fact that the allowance was determined by grade, and that some recipients drove no business miles, did not alter the character of payments made to employees who did drive such miles.
4. Willmott’s allowances were likewise payments in respect of use under regulation 22A(3)(c). The employees’ freedom to spend the allowances was irrelevant. The allowances were paid to ensure that suitable vehicles were available for business use.
5. It was unnecessary to decide whether Willmott’s allowances were earnings. If they were earnings, paragraph 7A applied; if not, regulation 22A treated the relevant amount as earnings subject to the qualifying amount. Paragraphs 3 and 9 did not independently apply: the allowances were not payments towards expenses which employees were obliged to incur, nor specific and distinct payments of expenses actually incurred.
6. Laing’s appeal was allowed. HMRC’s appeal in Willmott was dismissed. Laing’s appeal was remitted to the First-tier Tribunal if necessary to determine quantum.

• Upper Tribunal (Tax and Chancery Chamber): allowed Laing’s appeal against [2021] UKFTT 0211 (TC), dismissed HMRC’s appeal against [2022] UKFTT 00006 (TC), and remitted Laing’s appeal for quantum if required.