NIM16178 - Class 1A NICs: Special Class 1A NICs cases: Fuel for use in a provided car – Payment of a mileage rate
Some employees who are 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 will depend 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 2003:
| Mileage rate paid | NICs position |
| Business mileage only- paid at a acceptable rate | No NICs liability |
| Business and private mileage – paid at a acceptable rate | Class 1A NICs due using the fuel benefit charge provided by section 149 ITEPA 2003. |
| Business mileage only – paid at a higher than acceptable rate | Class 1 NICs due on the profit element – ie, the amount above the acceptable rate. No Class 1A NICs are due whether or not a fuel benefit charge under section 149 scale charge arises |
| Business and private mileage – paid at a higher than acceptable rate | Class 1 liability due on
the difference between the mileage rate paid and the acceptable
rate for any business mileage.
Class 1A NICs due on the fuel provided for private use. |
Acceptable mileage rate
To be considered a true business expense excluded from earnings 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. This means that the only element a mileage rate for company cars will 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 cars
If 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, we will accept 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 will be treated as a taxable profit and
as earnings for the purposes of Class 1 NICs liability
However, the advisory rates are not binding. 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, the local cost of petrol/diesel and the
fuel consumption of the particular car.
For more information about the advisory fuel rates and the
amounts payable see EIM23781
Alternatively see the Inland Revenue's public website - Cars
home page/advisory fuel rates.
