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HMRC internal manual

Employment Income Manual

Employee Car Ownership Schemes: payments in connection with use of the vehicle: NICs treatment

Reg 22A SSCR 2001, SI 2001 No 1004, as amended by SI 2004 No 770

Introductory remarks, common to this section of the guidance

Unlike car benefit and car fuel benefit, no single body of legislation deals with ECOS. Instead, the relevant law when considering ECOS is drawn from various parts of the employment income and NICs legislation.

This guidance does not attempt to cover all relevant parts of the legislation in detail. Instead, it seeks to draw the essential aspects together in order to identify where tax and/or NICs can be payable under the normal benefits and expenses rules as they apply to ECOS.

The same principles apply to ECOS vehicles as to any privately-owned vehicles used for business travel.

Unlike the remainder of this manual, EIM31500 to EIM31599 cover both tax and NICs.

Payments in connection with use of the vehicle - NICs treatment

Relevant Motoring Expenditure (RME), as defined in the above Regulation, must meet 2 conditions:

  • expenses must be paid in respect of an employee’s privately owned vehicle
  • they must be paid to, or for the benefit of, the employee in respect of the use by the employee of that vehicle

Taking account of those conditions, a payment is a relevant motoring expense if:

  • it’s a mileage allowance payment within the meaning of the Approved Mileage Allowance Payments (AMAPs) scheme for tax purposes
  • it would be such a payment but for the fact that it has been paid to another for the benefit of the employee
  • it’s any other form of payment, except a payment in kind, paid to, or for the benefit of, the employee in respect of the use by the employee of their own vehicle

RME is added to other earnings in the earnings period in which it is paid to the extent that it is not covered by the ‘qualifying amount’ (QA).

If RME is more than the QA, the excess is earnings and must be added to any other earnings paid in the same earnings period when calculating Class 1 NICs.

If RME is less than the QA, nothing is added to other earnings. QA in excess of RME cannot be carried forward to any future earnings period, so is lost. The employee cannot claim NICs relief because the NICs legislation makes no provision for this.

Main guidance on the NICs mileage expenses scheme

This page contains only a brief summary of the NICs mileage expenses scheme. The main guidance begins at NIM05800.