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HMRC internal manual

National Insurance Manual

Class 1 NICs: Expenses and allowances: Motoring expenses (including mileage allowances) paid on or after 6.4.02: Liability for Class 1 NICs - restriction of the specific and distinct business expense rule

Paragraph 9 of part 8 of Schedule 3 to the Social Security (Contributions) Regulations2001 as amended by the Social Security (Contributions) (Amendment No 2) regulations 2002(SI 2002 No. 307)

From 6 April 2002, employers who pay their employees motoring expenses for using theirprivately owned cars for business travel can pay up to a statutory maximum amount thatwill not attract a Class 1 NICs liability. Any amount paid over the maximum will attract aClass 1 NICs liability.

Up to 5 April 2002 employers could choose to assess NICs liability using an exactexpenditure method. They could disregard from an employee’s earnings any specific anddistinct payments of motoring expenses actually incurred by the employee. From 6 April2002 that choice is no longer available. Employers must use the statutory system in forcefrom 6 April 2002 to calculate the maximum amount that can be paid free of NICs liability.They cannot choose instead to disregard actual expenditure. That is regardless of the factthat they might be able to identify payments that

  • are actual specific and distinct payments of, or contributions towards business expenses incurred; and
  • exceed the statutory maximum allowed.

The legislation

The amendment to paragraph 9 of Part 8 of Schedule 3 to the SS(C)R 2001, which becameeffective from 6 April 2002, removes the existing specific and distinct expense rule forpayments by way of relevant motoring expenditure (RME).

For more information about RME see NIM05815.

For more information about the specific and distinct rule for business expenses see NIM05020.

The extent to which the restriction applies to motoring expenses

The removal of the specific and distinct rule for business expenses applies to motoringexpenses paid for privately owned cars. It is applied regardless of the method by whichemployers pay motoring expenses. This means that motoring expenses met by

  • any type of mileage allowance or lump sum payment
  • use of a credit card or fuel agency card where the employee is making a payment on his own account, i.e. they are not authorised to buy goods or pay for services as their employer’s agent, (see NIM02193); or
  • the employee’s pecuniary liabilities being paid by the employer

are all subject to the same restriction.

Benefits or payments in kind are not covered by the rules that apply from 6 April 2002.They are dealt with like any other benefits. Therefore, Class 1A NICs might be due, see NIM13000.