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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1 NICs : expenses and allowances: travelling expenses: introduction

Legislation from 1 October 1998 to 5 April 2004

Regulations 19(1)(zg) and 19(10) were introduced into the Social Security (Contributions) Regulations 1979 with effect from 1 October 1998 to align the NIC treatment of business travel and subsistence allowances with the treatment for tax under the new travel rules introduced from 6 April 1998. The NICs provisions were consolidated into the Social Security (Contributions) Regulations 2001 as regulation 25 and paragraph 3 of Part VIII of Schedule 3.

These provided for excluding from the calculation of earnings for NICs purposes:

“A payment of, or a contribution towards, qualifying travelling expenses which the holder of an office or employment is obliged to incur and defray out of the emoluments of the office or employment.”

They defined “qualifying travelling expenses” as:

“(i) amounts necessarily expended on travelling in the performance of the duties of the office or employment; or

(ii) other expenses of travelling which are attributable to the necessary attendance at any place of the holder of the office or employment in the performance of the duties of the office or employment and are not expenses of ordinary commuting or private travel (wit

Although the intention was always to introduce the new travel rules for both tax and NICs from 6 April 1998, and guidance was issued to employers on that basis, legislative difficulties meant that the NICs regulations could not actually be made until 1 October 1998. In light of the original commitment to align from the start of the 1998/99 tax year it was agreed that employers should apply the new rules with effect from that date for both tax and NICs.

Legislation from 6 April 2004

On the 6 April 2004 the Social Security (Contributions) Regulations 2001 were amended in recognition of the coming into force of the Income Tax (Earnings and Pensions) Act 2003. This Act, whilst not changing the meaning or underlying policy intention of tax law, changed the structure and language of tax provisions dealing with the travel rules.

With effect from 6 April 2004, paragraph 3 of Part VIII of Schedule 3 was amended so as to provide for excluding from the calculation of earnings for NICs purposes:

“A payment of, or a contribution towards, travelling expenses which the holder of an office or employment is obliged to incur and pay as the holder of that office or employment.”

“Travelling expenses” are defined as:

“(i) amounts necessarily expended on travelling in the performance of the duties of the office or employment; or

(ii) other expenses of travelling which are attributable to the necessary attendance at any place of the holder of the office or employment in the performance of the duties of the office or employment and are not expenses of ordinary commuting or private travel (within the meaning of section 338 of ITEPA 2003 (travel for necessary attendance));

This wording reflects the language of ITEPA 2003 and the remainder of this guidance draws upon the travel rules as they have been rewritten. Cross references to the Employment Income Manual are provided for guidance on the equivalent tax treatment under ITEPA 2003 and, where necessary, cross references to ICTA 1988 legislation and guidance in the Schedule E manual have been retained.

It is important to remember however that ITEPA 2003 has not changed the travel rules.

Effect

From 6 April 1998, therefore, expenses incurred in connection with business travel are excluded from Class 1 NICs if they are incurred by employees:

  • in travelling in the performance of their duties, or
  • travelling to or from a place they have to attend in the performance of their duties

as long as the journey is not ordinary commuting or private travel.

“Travelling expenses” include not only the actual cost of any necessary journeys but also any subsistence costs attributable to the journey in question. Where, therefore, an employee has to stay away from home overnight on business, the cost of accommodation and meals is part of the necessary travel expenses. Even if the employee stays away for some time the cost of accommodation and meals is part of the travel expense that an employee will necessarily incur.

This serves, in effect, to exclude from Class 1 NICs from 6 April 1998 all reasonable business travel and subsistence allowances paid to employees. NIC liability will therefore arise only where an employer makes a payment in connection with travel which does more than reimburse an employee for the full cost of the business travel.

Where there is a Class 1 NICs liability it must be accounted for through the payroll in the pay period in which the payment is made.

Main changes

The main changes arising out of the new travel rules are in connection with :-

“Triangular travel” See NIM06265 
   
Temporary posting away from a permanent workplace See NIM06265 and NIM06270 
Site-based employees See NIM06280