Businesses could save themselves thousands of pounds in National Insurance contributions by amending the way they reimburse mileage payments to employees who take cash in lieu of a company car, claim ALD Automotive.

Net Mileage Plan, a new component within its AutoSolutions portfolio, uses the maximum HM Revenue and Customs’ tax and National Insurance contribution-free mileage reimbursement rate - 40p a mile - to reduce the gross cash allowance paid to employees without changing the net amount each person receives.

As a result of utilising the tax-free Approved Mileage Allowance Payments system in this way, employers can significantly reduce their National Insurance contribution (currently 12.8%) due on the cash allowance, say ALD Automotive.

Helen Fisk, manager of ALD Automotive’s AutoSolutions team, said: “Instead of, for example, an employer paying a cash allowance in lieu of a company car and 10p per business mile travelled, employers should pay the full tax-free 40p a mile rate and correspondingly decrease the monthly cash allowance. While the cash element continues to be taxed as salary, the mileage element is tax and National Insurance free.”

She added: “In some cases companies are unaware how tax and NIC-free mileage allowances can be used to help them cut costs. Our belief is that many organisations can cut their National Insurance bills significantly by using a dedicated software programme such as Net Mileage Plan to manage and administer mileage and payroll adjustments on a monthly basis.”