National Insurance Contributions’ Relief for Employees with Car Allowances

Car allowances come with tax and national insurance contributions (NIC) implications. A recent Upper Tribunal decision has introduced mandatory NIC relief for qualifying car allowances, altering the landscape of tax and NIC calculations. In this article, we explore this important development, its implications, and how employers and employees can navigate the new tax and NIC relief landscape for car allowances.

Standard Practice

Car Allowances

Car allowances are often provided to employees, where they use their personal car for business purposes. These are subject to  both income tax and national insurance contributions through the normal payroll.

Approved Mileage Allowance Payment

HMRC has set an approved mileage allowance of 45p per mile up to 10,000 miles and 25p per mile above 10,000 miles. This can be claimed by an employee and reimbursed by the employer for business mileage in their personal car.

Income Tax relief for a lower rate

Where an employer reimburses an amount less than the above approved rate then a claim can be made by the employee for income tax relief for this value. This is optional and is considered to be claimed by only 40% of tax payers

Latest Development for NIC relief

There has been an Upper Tribunal decision Laing O’Rourke Services Ltd v HMRC[2023]UKUT 155T, which confirmed that there is a similar relief for national insurance contributions.

It further confirmed that this ‘NIC disregard’ is mandatory.

This means employers MUST give relief for the Qualifying Amount (QA) =value of miles x 45p against a car allowance before calculating the primary and secondary NIC due.

There are differences between the values for Income tax and NIC:

 Income TaxNIC
Rate45p for the first 10,000 business miles 45p even above and 25p thereafter           45p even above 10,000 business miles
What can relief be set againstThe entire salaryThe car allowance (as held to be relevant motoring expenditure (RME) by the courts)

How to make a claim for historic business mileage


  • Make their own claim with HMRC
  • Ask employer to claim on their behalf and for colleagues.


  • Advise staff if they intend to put in a protective claim , under error or mistake provisions, for a refund of NIC paid in error, which would cover current and six full tax years
  • If immaterial from the company view, advise staff they can make their own claims


  • Alert clients that claims are possible. It may not be beneficial if there are few cases and low mileage.

Going Forward


  • Review for payroll calculations and advise that the Qualifying Allowance (QA) – (business miles x45p) must reduce the value of the relevant motoring expenditure (RME) for NI including at 45p for mileage above the 10,000 miles
  • Ensure employers keep monthly records to enable the adjustments to be made.
  • Review with software provider to ensure correct relief made.

Additional Information

If you require additional information regarding NIC Relief for employees with Car Allowances, please contact Paul Webb: or speak to your usual Dixcart contact.

The information provided within this document is for general informational purposes only. While every effort has been made to ensure its accuracy, no responsibility can be accepted for inaccuracies. Readers are advised that laws and practices may change over time. This document is provided solely for informational purposes and does not constitute accounting, legal, or tax advice. Professional advice should be sought before making any decisions based on the contents of this document.