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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Class 1 NICs: Expenses and allowances: Motoring expenses (including mileage allowances) paid on or after 6.4.02: Relevant motoring expenditure exceeds the qualifying amount

Relevant motoring expenditure exceeds the qualifying amount

Position before 6 April 2002

Before 6 April 2002, if the employer and/or employee could demonstrate the payment didno more than reimburse the employee the specific and distinct business expense incurred,no NICs liability would arise. For more information about the position before 6 April2002, see NIM05718.

Position from 6 April 2002

From 6 April 2002, this arrangement was replaced by a statutory scheme for dealing withNICs liability on motoring expenses incurred by employees who use their own vehicles forwork. The scheme includes a maximum amount that employers can pay to employees withoutincurring a NICs liability. This is called the qualifying amount (QA).

Amendments to the legislation, effective from 6 April 2002, restrict the existing NICsspecific and distinct business expense rule as it is applied to motoring expenses paid toemployees for using their own cars for business purposes. For more information about therestriction of the NICs specific and distinct business expense rule see NIM05806.

Where RME (see NIM5815 for a definition of RME) exceeds the QA(see NIM5830 to calculate the QA), the employer must add theexcess RME to any other earnings paid in the same earnings period the RME was paid, beforecalculating Class 1 NICs liability.


Employer pays salary calendar monthly at the end of each month

Employee does 1,000 business miles in April 2006

At the end of May the employer pays employee £500 (1,000 miles x £0.50 per mile)

QA 1,000 x £0.40 per mile = £400

RME – QA = £100

Other earnings paid in May = £2,000

Earnings liable for Class 1 NICs = £2,100

RME exceeds QA so excess of £100 must be included in gross pay.