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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 April 2002: calculating the amount liable for Class 1 NICs

How to calculate the amount of motoring expenses, paid to employees using their own car for business travel, to include in gross pay for Class 1 NICs – applies from 6 April 2002

To calculate the Class 1 NICs due on the motoring expenses as described at NIM05815 it’s necessary to follow the steps below.

Step 1

Identify the total amount of any relevant motoring expenditure (RME) paid to anemployee by an employer within an earnings period. RME incorporates all motoring expensespaid for the use of a privately owned car.

However, do not include amounts that have been provided as part of an Optional Remuneration Arrangement. See also EIM44140.

See EIM44010 for a definition of Optional Remuneration Arrangements.

See NIM05815 for a more detailed explanation of what RME is.

Step 2

Identify the maximum amount (the qualifying amount (QA)) the employer may pay free from NICs liability. Calculate the QA by multiplying the relevant approved mileage rate by the total of:

  • the number of business miles for which payment is being made; and
  • the number of business miles travelled, if any, since the last payment of motoring expenses was made but for which no payment is has been, or is to be, made

See NIM05830 for a more detailed explanation about the QA.

Step 3

Calculate if the RME exceeds QA.

Step 4

If the RME exceeds QA, add the excess RME to other earnings paid in the same pay period as the RME. Calculate Class 1 NICs due as normal.

If the RME is equal to or less than the QA, all the RME is disregarded from earnings. Any unused QA cannot be carried forward to use in a later earnings period.