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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: Calculating Class 1 NICs - example - mileage allowance paid for all business miles travelled

This example illustrates the rules for calculating the amount to be treated as earningsunder Regulation 22A of the SS(C)R 2001 where the employee receives a mileage allowancerate for all business miles travelled.


The employee uses his own car for business travel claiming expenses after the end ofeach calendar month.

His claim for one particular month is 500 miles at £0.44 per mile.

The employer pays for all business miles travelled.

Step 1

Calculate the relevant motoring expenditure (RME) paid

500 miles x £0.44 = £220

Step 2

Calculate the qualifying amount (QA) (including any non-reimbursed miles in the calculation)

500 miles x £0.40 = £200

Step 3

Subtract the QA (Step 2) from the RME (Step 1).

If the RME is equal to or less than the QA the payments made are not liable to Class 1 NICs.

If the RME is greater than the QA, the QA is disregarded from earnings so that no Class 1 NICs are due on the QA. The excess RME is earnings.

In this example the RME is more than the QA. The excess of RME above the QA is £20.

Step 4

The employer must add the £20 to any other earnings paid in the same earnings period as the RME was paid. This must be reported on the P11 or equivalent. Assess Class 1 NICs liability on the total earnings for that pay period in the normal way.

Tax position

For tax purposes, these payments by the employer are mileage allowance payments, which are outside the scope of the deduction of tax at source provisions of PAYE. The employer therefore does not have to include the excess in gross pay for PAYE tax purposes. However, he must reconcile the amounts paid at the end of the tax year and report excess payments on form P11D. See EIM31390.