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HMRC internal manual

National Insurance Manual

Class 1 NICs: Expenses and allowances: Mileage allowances: Rules before 6 April 2002: Calculating Class 1 NICs on mileage allowances


NIM05708 explains that, until 5 April 2002, liability forClass 1 NICs arises on the amount of any mileage allowance paid for business travel whichexceeds the actual cost of the business expense incurred. In other words, liability forNICs arises only where the employee profits from a payment of expenses. NIM05708 alsoexplains the difficulties of calculating the exact mileage expenses incurred in eachearnings period.

To overcome the difficulties an administrative arrangement is used to determine whetherthere is any profit included in a mileage allowance.

This administrative arrangement allows an employer to compare the mileage rate he pays toa rate, which for NICs, is considered not to include any profit. This is sometimesreferred to as a “yardstick” rate.

From 6 April 1996 to 5 April 2002, the yardstick rates used for NICs purposes have beenthe Inland Revenue’s Authorised Mileage Rates (AMRs). Full guidance on the InlandRevenue’s Authorised Mileage Rates is given at SE31860.

See NIM5715 to calculate the amount of earnings liable to Class1 NICs.

Class 1 NICs due for tax years before 1996/97

Where arrears of Class 1 NICs are being pursued for tax years before 1996/97, check theField Operations Manual for details of the appropriate ‘yardstick’ rates toapply. Prior to 6 April 1996, rates provided by independent motoring associations, such asthe Automobile Association, were used.