Local Authority (LA) employers pay mileage allowances to
employees who are considered either ‘essential car
users’ or ‘casual car users’. LA mileage
allowances are normally paid for business travel only and usually
consist of a mileage rate for each business mile travelled and, for
some drivers, lump sum payments. In most cases the lump sum is
calculated annually but paid monthly.
Many LA employers pay allowances at rates that are nationally agreed between the National Employers’ Organisation for Local Government Services and Local Government employee organisations. These rates are often called the National Joint Council (NJC) rates. As not all LA employers use these rates, some will have different arrangements.
The rules and method for determining whether any Class 1 NICs liability arises on mileage allowance payments made by LA employers are the same as for any other employer. See NIM05708 for mileage allowances and NIM05720 for lump sum payments.
Most LAs pay both a mileage rate and a lump sum payment to
employees considered ‘essential car users’. Typically,
the mileage rates paid to essential car users were below the Inland
Revenue authorised mileage rates.
For NIC purposes, most LA lump sum payments are considered a reasonable estimate of the associated costs of using a privately owned car for business purposes. In calculating the amount of these lump sums, LAs have regard to the actual costs involved.
LAs normally include in their lump sum calculations the business proportion of the cost of road tax, insurance, maintenance/repairs and depreciation. Where the lump sum is paid at or below the National Joint Council rate, accept that efforts have been made to calculate the lump sum payments in accordance with the actual costs incurred by employees. The guidance at NIM05721 explains how to calculate Class 1 NICs on lump sum payments.
Where LA employers pay lump sums that are not related to the National Joint Council rates, consider whether efforts have been made to calculate the lump sum payments in accordance with the actual costs incurred by their employees, see NIM05720. Acceptance that these lump sums represent costs associated with using a car for business purposes should only be refused where there is evidence to suggest that they have not been reasonably calculated. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)
LAs normally pay a higher mileage rate to employees who are
described as ‘casual car users’. Lump sum payments are
not made to casual car users.
If the LAs casual car user’s mileage rate is higher than the appropriate ‘up to 4,000 miles’ IR’s AMR, Class 1 NICs are due on the excess. The ‘up to 4,000 miles’ rate is used for NICs irrespective of the number of business miles actually travelled.
Some LAs have, in the past, argued that their rates accurately
reflect an employee’s actual business costs and that no NICs
are payable. This is not a view held by HMRC.
In 1989 the former Contributions Agency advised the Local Authorities’ Conditions of Service Advisory Board (LACSAB) that a Class 1 NICs liability arises on:
If a LA is paying a mileage allowance which is based on a rate which exceeds the IR AMR and the LA believes that their higher rate does not contain a profit element, it is up to them to demonstrate that this is so. If they can verify the position there will be no liability for Class 1 NICs on any part of the LA’s higher mileage rate, see NIM05708.
Some LAs provide employees with leased cars and the LA pays a very low mileage rate, typically a few pence per mile. The rate paid is intended to reimburse only the amount actually spent by the employee on fuel and oil. In such cases, there is no liability for Class 1 NICs if the mileage rate paid is reasonable and neither is there any Class 1A NICs liability. NIM16178 summarises the NICs position.