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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1A National Insurance contributions: Special Class 1A NICs cases: Fuel for use in a provided car: Payment of a mileage rate

Some employees provided with cars may receive a mileage rate rather than free fuel. The mileage rate will normally be payable in respect of business travel but can sometimes be paid for private mileage.

The NICs liability on these mileage rates depends on the rates paid and whether they are paid for non-business mileage.

Mileage Rates The following table shows the NICs position where an employee receives a mileage rate for travel undertaken in a car that attracts a car benefit charge under section 120 ITEPA (before 6 April 2003 – section 157 ICTA 1988).

Mileage rate paid NICs position
   
Business mileage only - paid at an acceptable rate No NICs liability – No fuel benefit charge arises under section 149 of ITEPA 2003 (before 6 April 2003 – section 158 of ICTA 1988). Section 10(1)(a) of SSCBA 1992 not satisfied so no Class 1A NICs due, see NIM13070. Paragraph 9 Part 8 Schedule 3 SS(C)R 2001 satisfied so no Class 1 NICs due, see NIM05020.
Business and private mileage – paid at an acceptable rate Class 1A NICs due on the amount of the fuel benefit provided by section 149 of ITEPA 2003 (before 6 April 2003 – section 158 of ICTA 1988). Section 10(1)(a) SSCBA 1992 satisfied, see NIM13070. Mileage rates disregarded from earnings by paragraph 7D Part 8 Schedule 3 SS(C)R 2001, see NIM16177.
Business mileage only – paid at a higher than acceptable rate Class 1 NICs due on the profit element. i.e. the amount above the acceptable rate. No Class 1A NICs are due on the mileage rates, whether or not a fuel benefit charge under section 149 of ITEPA 2003 (before 6 April 2003 – section 158 of ICTA 1988) arises.
Profit element of mileage rate is earnings under section 3(1)(a) SSCBA 1992, see NIM02010. Acceptable mileage rate disregarded from earnings by paragraph 9 Part 8 Schedule 3 SS(C)R 2001, see NIM05020. Section 10(1)(c) SSCBA 1992 is not satisfied, see NIM13090.    
  Business and private mileage – paid at a higher than acceptable rate Mileage rate for private travel

Class 1A NICs due on the amount of the fuel benefit provided by section 149 of ITEPA 2003 (before 6 April 2003 – section 158 of ICTA 1988). Section 10(1)(a) SSCBA 1992 satisfied, see NIM13070. Mileage rates disregarded from earnings by paragraph 7D Part 8 Schedule 3 SS(C)R 2001, see NIM16177.

Mileage rate for business mileage

Class 1 NICs due on the profit element. i.e. the amount above the acceptable rate. No Class 1A NICs are due on mileage rates. Profit element is earnings under section 3(1)(a) SSCBA 1992, see NIM02010. Acceptable mileage rate disregarded from earnings by paragraph 9 Part 8 Schedule 3 SS(C)R 2001, see NIM05020. Section 10(1)(c) SSCBA 1992 is not satisfied, see NIM13090.

Acceptable mileage rateTo be considered a true business expense excluded from earnings, see

NIM05020, any mileage rate paid by an employer must do no more than meet the costs incurred. Most company car costs are incurred directly by the employer, eg depreciation, road tax, servicing and parts. To be considered as an acceptable mileage rate when using the table above, the only element the mileage rate for company cars should cover is the cost of the fuel and other expenses which the employee may be required to pay for, for example top- up oil.

Advisory fuel rates for company carsIf the rate paid per mile of business travel is no higher than the advisory fuel rate for the particular engine size and fuel type of the car, HMRC accepts that there is no taxable profit and no Class 1 NICs liability.

If an employer pays mileage rates that are higher than the advisory fuel rates and the payments are made solely for business travel, normally any excess is treated as a taxable profit and as earnings for the purposes of Class 1 NICs liability.

However, the advisory rates are not binding for NICs liability. Where an employer can demonstrate that the cost of business travel in company cars in the fleet concerned is higher than that provided by the advisory fuel rates, we will accept there is no profit.

Advisory Fuel rates were introduced in January 2002. Before that date, the rate paid by the employer was considered in relation to the car for which the mileage rate is being paid with regard to the

  • engine size of the car,
  • local cost of petrol/diesel; and
  • fuel consumption of the particular car.For more information about the advisory fuel rates and the amounts payable see EIM23781 (before 6 April 2003 – see SE23773a).