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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: Determining whether payments are for an employee’s use of a qualifying vehicle: Example

 - employer pays regular round sum allowance which is not relevant motoring expenditure


To determine whether payments are RME may involve trying to establish whether thepayments are made for the employee’s use of a qualifying vehicle.Sometimes you will have to establish facts and examine those facts to determine whetherthe payments are for the employee’s use of a qualifying vehicle. NIM05847 tells you the facts you should try to establish to enableyou to form a view about whether the payments are for the employee’s use of aqualifying vehicle. NIM05848 provides guidance to help you forma view about whether the payments are for the employee’s use of a qualifying vehicle.


The facts

  1. Employer pays £500 per month to each employee in a group who use their vehicles for business travel. The records show that the £500 per month was calculated based on the cost to the employer if they provided the employee with a lease car. The employer did not consider the
  • mileage the employees undertook or was intended to undertake, nor
  • the cars the employees actually use

when determining how much should be paid.

  1. The same amount is paid to a number of employees. Individual annual business mileage varies from less than 100 miles to more than 20,000 miles.

  2. Employees must drive a car that is less than 6 years old. No other restrictions are placed on the type of car employees drive.

  3. The car allowance is increased on promotion where employees are required to use their own cars for business travel. On promotion employees can continue to use the same car they were using before promotion. On promotion, the facts show that there is no significant change in employees’ business travel.

  4. The employer does not conduct regular reviews to establish if the employees’ costs are likely to increase, decrease or remain unchanged. Car allowances have not decreased but have increased on two occasions. The increases were in line with the percentage increase in salaries.

Commentary on the example

There is no correlation between the amount paid and the costs the employees eitherincur or are expected to incur in the year, for using their vehicles. Although HMRC doesnot require employers to conduct regular reviews to determine costs for individualemployees, you should expect an employer to be able to show that they reasonablycalculated the amount of the car allowance to take account of the costs employees’are likely to incur for the level of use of their vehicles.

These factors indicate that the payments are not for the employees’ use of theirvehicles

  • The allowance is paid irrespective of the type of car the employee drives. Some employees may drive cars with low costs and others may drive cars with high costs, yet they all receive the same car allowance.
  • Employees get the same allowance irrespective of the differences in the actual business mileage undertaken.
  • The allowance increases on promotion yet the business use does not increase significantly.


  • employees, who use their own cars for business travel, incur costs


  • the allowance may be less than or exceed those costs

there are insufficient facts to conclude that the payments made are for the employeesuse of the vehicles. The payments are not RME or MAPs. The facts show that the paymentsare round sum allowances (NIM06160) which are additionalearnings. Therefore, they should be included in gross pay for both Class 1 NICs and PAYEincome tax.