Expenses lump sums ‘not emoluments’

Posted: 6th November 2012

Car DashboardAn employer is due a substantial tax rebate after persuading the Court of Appeal that lump sum payments it made to staff in respect of motoring expenses should not have been treated as an emolument of their employment and thus were not subject to national insurance contributions (NICs).

For reasons of convenience and business efficacy, Cheshire Employer and Skills Development Limited (the company) paid its employees lump sums, ranging upwards from £3,600 per annum, rather than calculating their travel expenses on a ‘per mile’ basis. Her Majesty’s Revenue and Customs (HMRC) refused to grant the company a rebate on NICs, insisting that payments made in that form should be treated as forming part of employees’ salaries.

There was evidence that lump sums were paid to staff even if they did not drive 2,500 miles per annum on business, which was stated to be a requirement of the scheme, and that substantially higher sums were paid to more senior members of staff, including two directors of the company who received £7,000 per annum.

The First-Tier Tribunal (FTT) ruled in the company’s favour that the payments should not be treated as earnings from employment; however that ruling was later overturned by the Upper Tribunal (UT).

Allowing the company’s appeal, however, the Court of Appeal ruled that, although the issue was a finely balanced one, there was evidence to support the FTT’s ruling and the UT had had no jurisdiction to re-make the decision by substituting its own views on the earnings point. The FTT’s decision was restored.