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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1 NICs: Expenses and allowances: Mileage allowances: Rules before 6 April 2002: Use of Inland Revenue's Authorised Mileage Rates

 

Since 6 April 1996, employers have been able to establish whether there is a Class 1NICs liability on the mileage allowances they pay to employees for business travel. Theydo this by comparing them to the Inland Revenue’s Authorised Mileage Rates (AMR).

The Inland Revenue’s AMRs are considered to be sufficiently generous to normally becertain that they fully cover the business proportion of all standing and running charges.

Guidance on the Inland Revenue’s AMRs is given at SE31860.

If the mileage rate an employer pays for business travel is greater than the appropriateAMR rate, Class 1 NICs are due on the amount of the employer’s rate that exceeds theAMR rate – the profit element explained at NIM05708.

For NICs, only the “up to 4,000 miles AMR rate” is used,irrespective of the number of business miles travelled.

Example 1 – No Class 1 NICs due  
   
Tax year 2001/02
Engine capacity of employee’s car 1,800
Business mileage 10,000
Mileage allowance paid by employer 45p per mile for first 4,000 miles
25p per mile for every mile above 4,000 miles  
In this example the employer’s mileage allowances are the same as the Inland Revenue’s AMRs, see SE31901, so there is no element of profit. As a result, the amounts paid are not earnings and no Class 1 NICs are due.  

 

Example 2 –Class 1 NICs due  
   
Tax year 2001/02
Engine capacity of employee’s car 1,800
Business mileage 10,000
Mileage allowance paid by employe 60p per mile for first 4,000 miles
25p per mile for every mile above 4,000 miles  
In this example the employer’s mileage allowances are more than the Inland Revenue’s authorised mileage rates for the first 4,000 miles, see SE31901. The amount paid for miles above 4,000 is the same as the Inland Revenue’s AMRs. The excess paid above the Inland Revenue’s AMRs, in this case 15p per mile for the first 4,000 miles, is profit from the employment on which Class 1 NICs are due.  

Where a profit exists within an employer’s mileage rate, that amount should be addedto any other earnings paid to the employee in the earnings period in which the mileageallowance is paid and Class 1 NICs assessed on the aggregated amount.

The use of the IR AMRs to establish profit is not compulsory for periods to 5 April 2002.An employer who does not favour using this method can dispense with mileage ratecomparisons altogether and assess NICs in accordance with regulation 26 and paragraph

  • 3 of Part 8 of Schedule 3 to the 2001 Regulations - travelling expenses rules, see NIM06240; and
  • 9 of Part 8 of Schedule 3 to the 2001 Regulations - specific and distinct payments of, or towards, expenses actually incurred, see NIM05020.

An employer who takes this approach may find that the payment that is subject to NICsis greater than the payment which would be subject to NICs if the appropriate AMR had beenapplied. This is because use of the “up to 4,000 mileage rate” for all businessmiles travelled will generally produce a more generous NIC free amount than the specificand distinct expense rule explained at NIM05708.