In Cheshire Employer Skills and Development Ltd v HMRC [2012] EWCA Civ1429 the Court of Appeal ruled that lump sum motoring allowances paid to staff did not constitute earnings for NICs.

The Appeal Court agreed with the findings of the First Tier Tribunal, allowing the taxpayers' appeal against the Upper Tribunal decision, see Total People Ltd v HMRC [2010] UKFTT 379 (TC) and HMRC v Cheshire Employer Skills and Development Ltd (formerly Total People) [2011] UKUT 329.

  • A company employed over a hundred training advisers who were required to run their own vehicles.
  • The company paid mileage allowances in two ways, by way of a straightforward mileage allowance payable at a rate per mile or alternatively, by way of a smaller mileage allowance of 12 and later 13 pence per mile plus an annual lump sum payable in monthly instalments.
  • The company initially treated the lump sum payments as earnings and subject to NICs, but after taking advice claimed a refund of NICs on the basis that the payments were in fact reimbursements of motoring expenditure.

The First-Tier Tribunal agreed with the company, HMRC appealed to the Upper Tribunal and won, and the case went to the Court of Appeal where it was decided in the favour of the taxpayer.  


The relevant statutory provision is Regulation 22A of the Social Security (Contributions) Regulations 2001 as amended with effect from 5 April 2003 by the Social Security (Contributions) (Amendment No 2) Regulations 2002.

Regulation 22A: Amounts to be treated as earnings in connection with the use of qualifying vehicles other than cycles

(1) To the extent that it would not otherwise be earnings, the amount specified in paragraph (2) shall be so treated.
(2) The amount is that produced by the formula - 


Here -  RME is the aggregate of relevant motoring expenditure within the meaning of paragraph (3) in the earnings period; and QA is the qualifying amount calculated in accordance with paragraph (4).

(3) A payment is relevant motoring expenditure if - 
(a) it is a mileage allowance payment within the meaning of section 197AD(2) of the Taxes Act;
(b) it would be such a payment but for the fact that it is paid to another for the benefit of the employee; or
(c) it is any other form of payment, except a payment in kind, made by or on behalf of the employer, and made to, or for the benefit of, the employee in respect of the use by the employee of a qualifying vehicle. Here "qualifying vehicle" has the same meaning as in Schedule 12AA to the Taxes Act, but does not include a cycle within the meaning of section 192(1) of the Road Traffic Act 1988.

(4) The qualifying amount is the product of the formula - 

M × R

Here -  M is the sum of -
(a) the number of miles of business travel undertaken, at or before the time when the payment is made -
(i) in respect of which the payment is made, and
(ii) in respect of which no other payment has been made; and
(b) the number of miles of business travel undertaken - 
(i) since the last payment of relevant motoring expenditure was made, or, if there has been no such payment, since the employment began, and
(ii) for which no payment has been, or is to be, made; and

 R is the rate applicable to the vehicle in question, at the time when the payment is made, in accordance with paragraph 4(2) of Schedule 12AA to the Taxes Act and, if more than one rate is applicable to the class of vehicle in question, is the higher or highest of those rates.

From 6 April 2004 the references to the statutes were substituted and reference is thereafter to sections 229(2), 235 and 230(2) of the Income tax (Earnings and Pensions) Act 2003 in place of those quoted above.

The mechanics
First decide whether sums paid to an employee as motoring expenses are earnings.  If they are, they are subject to NICs. In short, such a payment should not be linked to a salary or increase with normal pay rises. 

If the sums paid are not deemed to be earnings on first principles, they will be deemed to be earnings (they will be RME as defined above) if they are in excess of QA (as defined). 

The effect is that a payment of a lump sum as paid in this case or any mileage payment more generous than 40 pence per mile will still attract NICs but only to the extent that it exceeds 40 pence per mile.  In the above case the claim is only for such sum as represents the difference between 12 or 13 pence per mile ie 28 or 27 pence per mile.

External link

Cheshire Employer Skills and Development Ltd v HMRC [2012] EWCA Civ1429