National Insurance contributions and employee travel expenses (490: Chapter 6)
Find out about the National Insurance contributions rules for employee travel expenses.
Payment of business expenses
6.1
The rules for National Insurance contributions broadly follow the rules for tax on permanent and temporary workplaces. If a liability for National Insurance contributions arises, that will depend on how the travel cost incurred by an employee are met.
Where the employer reimburses the employee’s travel costs for journeys to a temporary workplace, or directly pays for business travel arranged by employees on their own behalf, Class 1 National Insurance contributions will not be due if the business travel expenses are reasonable.
No Class 1 National Insurance contributions are due where an employer makes a travel payment which does no more than reimburse an employee for the full cost of business travel. Where there is a Class 1 National Insurance contributions liability, it must be accounted for through the payroll in the earnings period in which the payment is made.
If an agreed rate is paid for common business expenses (for example using HMRC’s benchmark scale rates, or an agreed bespoke scale rate) then no National Insurance contributions will be due on that payment.
If a round sum allowance is paid then National Insurance contributions will be due, however, if the employer can actually identify the amount of any specific business expenses within the round sum allowance then this amount can be excluded from National Insurance contributions liability.
In practical terms if a round sum allowance is paid to an employee in one month and no specific and distinct business expenses from previous months have been deducted, the whole of the payment will attract Class 1 National Insurance contributions.
If actual expenses are then presented to the employer in the following months, deduct those expenses from a future months allowance and exclude that element of the allowance from Class 1 National Insurance contributions.
There are special rules for working out National Insurance contributions on motoring expenses paid to employees who use their privately owned vehicles for business travel - go to paragraph 6.3.
Employer arranged transport
6.2
Where the employer arranges or provides travel facilities, Class 1A National Insurance contributions will be due unless the benefit is exempt from tax. If the benefit is exempt from tax it will also be exempt from Class 1A National Insurance contributions.
Where the travel facility is not exempt from tax, but the employee is entitled to tax relief set against it, Class 1A National Insurance contributions will not be due if the tax relief covers the whole cost of the travel facility.
In any other case, Class 1A National Insurance contributions will be due on the whole cost of the travel facility, including any part covered by tax relief available to the employee.
Example
Nicole’s employer pays her £25 to buy a rail ticket to attend a training course at her regional training centre.
Nicole decides to go by bus. The return bus fare is £10.
The £15 not spent is earnings and Nicole’s employer should add it to her other earnings in that pay period to determine the Class 1 National Insurance contributions due.
Example
Nigel is sent to work at a temporary workplace for 4 weeks. As well as his travelling expenses he is given £50 a night subsistence to cover the cost of bed and breakfast at a hotel near the temporary workplace.
However, Nigel stays with a friend and incurs no accommodation costs.
The £50 a night he is paid by his employer is earnings and should be added to Nigel’s other earnings in the pay period to determine the Class 1 National Insurance contributions due.
Example
Nikki is sent to work at a temporary workplace for 3 months. Her employer arranges for her to stay at a hotel near her temporary place of work and pays the hotel direct for her accommodation and meals. Nikki travels home every Friday.
No Class 1A National Insurance contributions are due as Nikki is entitled to full tax relief for tax purposes on the costs met by her employer.
Example
Catriona is sent by her employer to work at a temporary workplace for 5 days. As the temporary workplace is close to where her aunt lives, her employer agrees to pay for Catriona to stay for a further 2 days.
As the costs met by the employer are a mix of business and private, the full amount paid by the employer is liable to Class 1A National Insurance contributions, even though Catriona is entitled to tax relief for the 5 days.
Motoring expenses for use of own vehicle
6.3
There are special rules for working out the amount of National Insurance contributions that are due on motoring expenses paid to employees who use their own vehicles for business travel.
These rules apply to all motoring expenses, including mileage allowances which are based on a set rate per mile, lump sums, business use car allowances and payments for fuel purchased for business use.
The rules also apply to employees who use their own vans, motorcycles or cycles. Go to the Expenses and benefits for directors and employees - a tax guide: 480.
The rules do not apply to travel facilities arranged or provided by the employer. Go to paragraph 6.2.
6.4
Under these rules there is a maximum amount that an employer can pay free of National Insurance contributions to employees who use their own vehicles for business travel.
Where employers pay more than the maximum amount, add the excess to any other earnings the employee receives in the earnings period in which the payment of motoring expenses is made.
Then work out the Class 1 National Insurance contributions on the employee’s total earnings.
6.5
To work out whether Class 1 National Insurance contributions are due on mileage allowances, multiply the amount of business miles travelled by the employee by an approved rate.
This will be the maximum amount that can be paid free of National Insurance contributions. The maximum is then compared to the amount that has been paid.
Class 1 National Insurance contributions are due on any amount over the maximum.
Go to the Expenses and benefits for directors and employees - a tax guide: 480.
6.6
For cars and vans the rate to use is HMRC’s approved mileage rate. For tax purposes this is currently 45p per mile for the first 10,000 business miles and 25p per mile thereafter.
For National Insurance contributions, the scheme uses the higher or highest of HMRC’s approved rates, currently 45p per mile, for all business miles.