If employers pay relevant motoring expenditure (RME) to
employees in an earnings period, the aggregate total of which is
less than the qualifying amount (QA), the RME is disregarded from
earnings so no Class 1 NICs are due.
RME paid up to the QA is disregarded from earnings by paragraph 7A of Part 8 of Schedule 3 to the SS(C)R 2001.
If employers only pay mileage allowance payments that are less than the approved mileage rates used for the purposes of the NIC motoring expenses scheme, no NICs liability will arise. For example, an employer pays £0.30 per mile when the approved rate is £0.40.
For more information about the approved mileage rates for NICs purposes see NIM05833.
It is worth noting that the employer cannot deduct any QA in excess of the RME paid from other earnings paid in the same earnings period the RME was paid. Nor can the employer carry forward the QA in excess of the RME to use the next time the employer pays RME.
Employer pays salary calendar monthly at the end of each month
Employee does 1,000 business miles in April 2006
At the end of May the employer pays employee £300 (1,000 miles x £0.30 per mile)
QA 1,000 x £0.40 per mile = £400
RME – QA = -£100
Other earnings paid in May = £2,000
Earnings liable for Class 1 NICs = £2,000
QA exceeds RME so RME is not included in gross pay. Excess QA, i.e. £100, cannot be deducted from gross pay or any subsequent pay.