NIM05745 - Class 1 NICs: Expenses and Allowances: Mileage allowances: Rules before 6 April 2002: Health Authority regular and standard car users

This guidance needs to be read in the context of the NICS treatment that applied pre 06 April 2002

Introduction

Health Authority (HA) employers pay mileage allowances to employees who are considered either ‘regular car users’ or ‘standard car users’. HA 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 HA employers pay allowances at rates that have been agreed nationally with the Department of Health. There are separate rates of mileage allowances for ‘General Whitley Council (CWC) staff and Hospital Medical and Dental staff (HMDS).

The rules and method for determining whether any Class 1 NICs liability arises on mileage allowance payments made by HA employers are the same as for any other employer. See NIM05708 for mileage allowances and NIM05720 for lump sum payments.

Health Authority (HA) Regular Car Users

Most HAs pay both a mileage rate and a lump sum payment to employees considered to be ‘regular car users’. Typically, the mileage rate paid to regular car users is below the Inland Revenue authorised mileage rates (AMR).

For NIC purposes, most HA lump sum payments are considered to be a reasonable estimate of the associated costs of using a privately owned car for business purposes. In calculating the amount of these lump sums HAs have regard to the actual costs involved.

HAs 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 CWC or HMDS rates, 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 HA employers pay lump sums that are not related to the CWC or HMDS 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.

Health Authority (HA) Standard Car users

HAs normally pay a higher mileage rate to employees described as ‘standard car users’. No lump sum payments are made to standard car users. If the standard car user’s rate is higher than the appropriate ‘up to 4,000 miles’ IR 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.

Health Authority (HA) mileage rates

Some HAs, have in the past, argued that their CWC or HMDS rates do accurately reflect an employee’s actual business costs and that no NICs are payable. This is not a view held by HMRC.

In 1990 the former Contributions Agency advised the Department of Health that a Class 1 NICs liability arises on:

• any mileage rate paid above the approved yardstick rate, see NIM05715, and
• on the profit element of a lump sum paid to regular car users, see NIM05720.

If an HA is paying a mileage allowance which is based on a rate which exceeds the IR AMR, and the HA 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 HA’s higher mileage rate, see NIM05708.

Health Authority (HA) leased cars

Some HAs provide employees with leased cars and the HA 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.