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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 - monthly lump sum and a mileage allowance paid through the payroll

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 monthly lump sum anda mileage allowance is paid.


The employer pays his employee a fixed monthly lump sum to cover non-fuel costs forusing his car for business travel.

The monthly allowance is £200.

The employee submits claims for a mileage allowance to cover the cost of fuel after theend of each calendar month.

The mileage allowance is 12p per mile.

The employee starts working for this employer in April.

For the purposes of this example assume that HMRC accepts that the monthly lump sum isRME. See NIM05845 to NIM05849 forguidance about determining whether lump sum payments are RME.

At the beginning of May the employee submits a claim for 700 business miles undertaken inApril.

On 30th April and 31st May, the employer pays the employee the monthly car allowance of£200.

On 17th May the employer pays the employee £84 as a mileage allowance (700 miles x£0.12).

RME paid in April

On 30th April the employer does not know what business miles the employee undertook inApril so cannot calculate the QA. Therefore, the employer must add the RME paid in April,i.e. £200, to any other earnings paid in the same earnings period and calculate Class 1NICs liability.

RME paid in May

Step 1

Calculate the amount of RME paid in May

The lump sum of £200 + (700 miles x £0.12 = £84) = £284

Step 2

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

700 miles x £0.40 = £280

Step 3

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

£284 – £280 = £4

In this example the RME is more than the QA. The QA is disregarded from earnings. So, noClass 1 NICs are due on the QA.

Step 4

The employer must add the £4 to any other earnings paid in the same earnings period theRME was paid and report it on the P11 or equivalent in the same period.

Calculate Class 1 NICs on the total earnings for that earnings period in the normal way.

The £4 is exempt from PAYE income tax and should not be included on form P11 for taxpurposes. However, it must be returned on form P11D as excess mileage allowance payments.See EIM31235.