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HMRC internal manual

National Insurance Manual

Class 1 NICs : Expenses and allowances : Travelling expenses : Breakdown in car sharing arrangements

Extra Statutory Concession (ESC) A66 was extended from 6 April 1999 to exempt from taxtransport facilities which an employer provides in the event of the breakdown of carsharing arrangements which employees have set in place for their journeys between home andwork.

Position from 6 April 2001 to 5 April 2004

From 6 April 2001 legislation was introduced to allow a similar exclusion in respect ofClass 1 NICs. The legislation was contained in regulation 25 and in paragraph 6(g) of PartV and in paragraph 8(d) of Part X of Schedule 3 to the Social Security (Contributions)Regulations 2001.

The NICs legislation means that from 6 April 2001, where an employee cannot get home on aparticular occasion in the shared car because of unforeseen and exceptional circumstances,and the employer pays for, or reimburses the cost of or provides vouchers in respect ofthe employee’s journey home then no Class 1 NICs will be due.

Unforeseen and exceptional circumstances include:

  • where the employee travels home at their normal time but, for reasons beyond their control, cannot travel in the shared car
  • where the employee expects to travel home at their normal time and the shared car travels at that time but it turns out that the employee needs to travel home at a different time.

The exclusion applies only to a maximum of 60 journeys in a tax year which are allowedin relation to the operation of the concession provided by ESC A66.

See SE10210 for general guidance on the application of ESC A66.

Position from 6 April 2004

With effect from 6 April 2004 the Social Security (Contributions) Regulations 2001 wereamended in recognition of the coming into force of the Income Tax (Earnings and PensionsAct) 2003 (ITEPA 2003).

Although ITEPA 2003 did not change the meaning of existing tax law, the opportunity wastaken, as part of the tax law rewrite commitment, to provide legislative support for taxexceptions previously provided under cover of extra statutory concessions.

Legislative cover for those items excepted from income tax by virtue of ESC A66 (latenight taxis and failure of car sharing arrangements) can now be found at section 266(1)ITEPA 2003 (exemption of non cash vouchers for exempt benefits) and section 248 ITEPA 2003(transport home: late night working and failure of car sharing arrangements).

As a consequence the NICs legislation was amended with effect from 6 April 2004 to reflectthe new ITEPA 2003 provisions. The NICs exceptions are now contained at paragraph 5 ofPart V and paragraph 8 of Part X of Schedule 3 and disregard from earnings:

  • a non cash voucher which is not charged to tax by virtue of section 266(1) of ITEPA 2003 if the voucher can be used to obtain transport home in the event of car sharing arrangements breaking down, the provision of which would be exempt from tax by virtue of section 248 ITEPA 2003.
  • a payment in the event of car sharing arrangements breaking down which is not charged to tax by virtue of section 248 ITEPA 2003.

The changes ensure that full tax and NICs alignment on the treatment of payments andvouchers provided as a result of a breakdown in car sharing arrangements is retained.

See EIM10210 for general guidance on section 248 ITEPA.

Payments in Kind

Where car sharing arrangements breakdown and the alternatives are provided in such away as to be provided as payments in kind (for example, where the employer contractsdirectly with a taxi firm to provide transport home in such situations) they continue tobe excluded from Class 1 NICs by virtue of paragraph 1 of Part 2 of Schedule 3 to theSocial Security (Contributions) Regulations 2001 [formerly regulation 19(1)(d) of theSocial Security (Contributions) Regulations 1979]. They will also be excluded from Class1A NICs in accordance with the general exception from Class 1A NICs in relation toanything which is not taxable as general earnings. (See NIM13000 forguidance regarding the general principles concerning Class 1A liability).

See also NIM06360 for guidance on the NICs exclusion in respectof late night travel home.