Since 6 April 1996, employers have been able to establish
whether there is a Class 1 NICs liability on the mileage allowances
they pay to employees for business travel. They do this by
comparing them to the Inland Revenue’s Authorised Mileage
Rates (AMR).
The Inland Revenue’s AMRs are considered to be
sufficiently generous to normally be certain that they fully cover
the business proportion of all standing and running charges.
Guidance on the Inland Revenue’s AMRs is given at
SE31860.
If the mileage rate an employer pays for business travel is
greater than the appropriate AMR rate, Class 1 NICs are due on the
amount of the employer’s rate that exceeds the AMR rate
– the profit element explained at
NIM05708.
For NICs,
only the “up to 4,000 miles AMR rate”
is used, irrespective of the number of business miles
travelled.
| Example 1 – No Class 1 NICs due | |
| Tax year | 2001/02 |
| Engine capacity of employee’s car | 1,800 |
| Business mileage | 10,000 |
| Mileage allowance paid by employer | 45p per mile for first 4,000 miles |
| 25p per mile for every mile above 4,000 miles | |
|
In this example the employer’s mileage allowances are the same as the Inland Revenue’s AMRs, see SE31901, so there is no element of profit. As a result, the amounts paid are not earnings and no Class 1 NICs are due. |
|
| Example 2 –Class 1 NICs due | |
| Tax year | 2001/02 |
| Engine capacity of employee’s car | 1,800 |
| Business mileage | 10,000 |
| Mileage allowance paid by employe | 60p per mile for first 4,000 miles |
| 25p per mile for every mile above 4,000 miles | |
|
In this example the employer’s mileage allowances are more than the Inland Revenue’s authorised mileage rates for the first 4,000 miles, see SE31901. The amount paid for miles above 4,000 is the same as the Inland Revenue’s AMRs. The excess paid above the Inland Revenue’s AMRs, in this case 15p per mile for the first 4,000 miles, is profit from the employment on which Class 1 NICs are due. |
|
Where a profit exists within an employer’s mileage
rate, that amount should be added to any other earnings paid to the
employee in the earnings period in which the mileage allowance is
paid and Class 1 NICs assessed on the aggregated amount.
The use of the IR AMRs to establish profit is not compulsory
for periods to 5 April 2002. An employer who does not favour using
this method can dispense with mileage rate comparisons altogether
and assess NICs in accordance with regulation 26 and paragraph
An employer who takes this approach may find that the payment that is subject to NICs is greater than the payment which would be subject to NICs if the appropriate AMR had been applied. This is because use of the “up to 4,000 mileage rate” for all business miles travelled will generally produce a more generous NIC free amount than the specific and distinct expense rule explained at NIM05708.
