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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 not 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 miles travelled but the employer does not pay for miles which cover normal hometo office mileage. See NIM05837 for more information.

The example illustrates the effect of using non-reimbursed miles when calculating thequalifying amount (QA).


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

Since last month, when he was last paid his motoring expenses, he has travelled a total of600 miles of which the employer does not pay for 100 miles.

The employer pays the employee expenses of £220 on receipt of his expenses claim formbased on 500 miles at £0.44 per mile.

Step 1

Calculate the Relevant Motoring Expenditure (RME) paid, which is

500 miles x £0.44 = £220

Step 2

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

600 miles x £0.40 = £240

Although the employee only received payment for 500 miles, the full 600 miles should beused to calculate the QA. In this example this is an additional 100 miles, which have allbeen travelled since the last payment of RME.

For more information about identifying the number of business miles travelled forcalculating the QA see NIM05831.

Step 3

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

£220 - £240 = -£20

If the RME is equal to or less than the QA, the payments made are disregarded fromearnings so there is no Class 1 NICs liability on the RME payments.

If the RME is greater than the QA, the QA is disregarded from earnings but the excess RMEmust be added to any other earnings paid in the same earnings period.

In this example RME is less than the QA. There is no excess RME above the QA.

Step 4

As there is no excess RME above the QA, the employer does not need to add any of the RMEpaid to the employee’s other earnings paid in the same earnings period as the RME. NoClass 1 NICs liability arises on the RME payment.

The £20 by which QA exceeds RME is lost. It can neither be set against other earnings inthe earnings period, nor carried forward to the next earnings period.

Income tax position

For income tax purposes, the employer can reconcile mileage allowance payments madeagainst the approved mileage allowance payments at the end of the tax year. They do nothave to do the calculation in every earnings period unlike the RME – QA calculationfor NICs. Any excess above the approved amounts must be returned on form P11D. SeeEIM30058.