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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: Use of the Inland Revenue Approved Mileage Rate

Explanation of the approved mileage rate used to calculate the qualifying amount underthe NICs motoring expenses scheme: Regulation 22A(4) of the Social Security(Contributions) Regulations 2001 – Applies from 6 April 2002

Under the NICs motoring expenses scheme, the qualifying amount (QA) is the maximum suman employer can pay to employees who use their own vehicles for business travel withoutincurring a Class 1 NICs liability. Employers must calculate the QA by reference to theapproved mileage rates for tax purposes.

For more information about the meaning of the qualifying amount see NIM05830.

Using the approved mileage rates for tax purposes

The mileage rates used to work out tax exempt approved mileage allowance payments areprovided by section 230(2) ITEPA 2003. For a list of the approved mileage rates for thedifferent classes of vehicle, see EIM31240.

For the purposes of the NICs motoring expenses scheme, the mileage rate employers shoulduse is the rate that is applicable, when the payment is made, in accordance with section230(2) ITEPA 2003. In cases where, for tax purposes, there is more than one rateapplicable to any particular class of vehicle, the NICs scheme uses the higher or highestof those rates.

Example

An employee uses their own car to travel 15,000 business miles in the 2006/07 tax year.

For the purpose of calculating the QA for NICs, the rate is 40p per mile for all business miles travelled.

For income tax purposes, the rates are 40p per mile for the first 10,000 miles and 25p per mile for all miles above 10,000.

Use of the Inland Revenue authorised mileage rates before 6 April 2002

For more information about the use of the Inland Revenue authorised mileage rates tocalculate NICs liability before 6 April 2002 see NIM05715.