In M Najib & Sons Limited v HMRC [2017] TC5641 the First-Tier Tribunal (FTT) agreed with HMRC that mileage payments for commuting and health insurance payments were earnings and subject to Class 1 NIC despite later repayment by the Directors.

  • The Directors (father and son) had a 40p mileage allowance posted as a credit through the Directors’ Loan Account at the year end.
  • There was no mileage log.
  • The Directors’ private health insurance was paid for by the company (Directors’ personal names): it was intended that this would be posted straight to the Directors Loan Account but it was not.

HMRC conducted a PAYE investigation:

  • After negotiation HMRC and the taxpayer agreed that the mileage ‘reimbursement’ should be reduced for home to work mileage.
  • Both parties agreed that the excess mileage and the private health insurance were earnings and should be subject to tax, employee’s and employer’s NIC.
  • Subsequent to the inspection, the company debited the mileage payments and the private health insurance to the Directors’ Loan Account, effectively making good the amounts.

It was agreed that the fact that the amounts were made good by the Directors, meant there was no Income Tax charge: HMRC’s view was that this doesn’t extend to NIC where the amount is not made good in the same tax year.

The FTT agreed with HMRC that they could not adopt a purposive approach and reluctantly they concluded that a Class 1 NIC liability in one year cannot be extinguished by making good an amount in a subsequent tax year.


Our guides:

What are earnings for NICs purposes?

Travel rules for owner-managers

Directors' loan accounts: toolkit

Tax planning for directors

Pecuniary liabilities

Case: M Najib & Sons Limited v HMRC [2017] TC5641

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