NIM05710 - Class 1 NICs: Expenses and Allowances: Mileage allowances: Rules before 6 April 2002: Calculating Class 1 NICs on mileage allowances

NIM05708 explains that, until 5 April 2002, liability for Class 1 NICs arose on the amount of any mileage allowance paid for business travel which exceeded the actual cost of the business expense incurred. In other words, liability for NICs arose only where the employee profited from a payment of expenses. NIM05708 also explained the difficulties of calculating the exact mileage expenses incurred in each earnings period.

To overcome the difficulties an administrative arrangement was used to determine whether there was any profit included in a mileage allowance.

This administrative arrangement allowed an employer to compare the mileage rate he paid to a rate, which for NICs, was considered not to include any profit. This was sometimes referred to as a “yardstick” rate.

From 6 April 1996 to 5 April 2002, the yardstick rates that were used for NICs purposes were the Inland Revenue’s Authorised Mileage Rates (AMRs).

See NIM5715 to calculate the amount of earnings liable to Class 1 NICs.

Class 1 NICs due for tax years before 1996/97

Prior to 6 April 1996, rates provided by independent motoring associations, such as the Automobile Association, were used.