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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: Passenger payments

Payments made by employers to employees for carrying passengers for business travel incars or vans – Paragraph 7C of Part 8 of Schedule 3 to the Social Security(Contributions) Regulations 2001 inserted by the Social Security (Contributions)(Amendment No 2) Regulations 2002 SI 2002 No.307


Some employers make payments to employees for carrying passengers with them. If certainconditions are satisfied, the passenger payments they make can be disregarded fromearnings so that no Class 1 NICs are due.

Conditions and approved mileage rates for qualifying amounts of passenger payments

Four conditions must be satisfied before a passenger payment can be disregarded fromearnings. They are, the

  • employee driving the vehicle must be travelling on a business journey
  • payment must be specifically for carrying one or more passengers
  • passenger(s) must also be undertaking a business journey
  • vehicle must be a car or van, not a motor cycle, irrespective of who owns or provides the vehicle

For passenger payments, the calculation for the QA uses the approved mileage rate forpassenger payments provided by section 234(1) ITEPA 2003. See EIM31405 for details of theapproved mileage rate.

Payments must be specifically for carrying a passenger

Only payments specifically for carrying a passenger are ‘passenger payments’capable of being disregarded.

Where an employee is using their own car or van for business travel, the employer may paya mileage rate above that provided by section 230(2) ITEPA 2003 (i.e. the approved amountsfor mileage allowance payments). The excess is not, and cannot be treated as, a passengerpayment because it is unconnected to the carriage of passengers.

See EIM31400 for the meaning of the term ‘passenger payments’ for both tax andNICs.

Where passenger payments are made, the employer can take advantage of the additional QA ofpassenger payments which are free from NICs liability.