Travel and subsistence expenses are an amount paid out to an employee, by their employer, to cover costs associated with official visits or business travel. These expenses typically include travel, food and drink and lodging, as well as other associated outlay.
Typically the employer will pay the actual amounts expensed by the employee. However, paying subsistence expenses under the flat rate scheme can often appeal to employers and employees alike. These are calculated based on HMRC approved flat-rate amounts and are tax-free.
Subsequently, employees know exactly how much they’ll be paid and employers need not worry about reimbursing the exact cost.
What are the rates for subsistence expenses?
HMRC set benchmark scale rates, which can be used to calculate subsistence payments that are to be made to employees. The rates, which represent the maximum amounts that can be paid tax-free, are as follows:
Minimum journey time = 5 hours / Maximum amount of meal allowance = £5
Minimum journey time = 10 hours / Maximum amount of meal allowance = £10
Minimum journey time = 15 hours (and ongoing at 8pm) / Maximum amount of meal allowance = £25
For these purposes, a meal is deemed to be the combination of food and drink. Where the £5 or £10 rate applies and the qualifying journey continues beyond 8pm, a supplementary rate of £10 can be paid tax-free.
This supplementary amount is expected to cover added and unavoidable expense incurred directly as a result of working late.
Employers can choose to pay out less than the advisory rates, should they deem this to be more appropriate. However, should an employer wish to pay an employee more than the advisory rates, they must first consult HMRC. They must also be able to prove that actual outlay exceeds the benchmark rates.
If a higher amount is paid without prior HMRC approval, the excess is liable to tax and National Insurance contributions.
What is deemed to be qualifying expenditure?
The benchmark rates must only be used to make tax-free subsistence payments, to employees, where all qualifying conditions are met. These conditions are as follows:
- the travel is in the performance of the employee’s duties or to a temporary place of work on a journey that is not ‘ordinary commuting’ (i.e. the normal journey between home and work);
- the employee is absent from their normal workplace, or home, for an uninterrupted period in excess of five hours or ten hours, as appropriate;
- the employee has incurred costs on a meal (food and drink) after the journey has commenced and retained appropriate evidence of their expenditure.
A change to the ‘checking’ rules
Under current rules, employers are required to have a ‘checking’ procedure in place. In other words, the employer must be satisfied that the employee has incurred the outlay for which they are being reimbursed. This is typically done by checking receipts or credit card statements.
The system used by an employer will depend upon the size and nature of the business. Regardless, it should be adequate enough to ensure that expenditure meets the qualifying conditions, only includes allowable items and is not disproportionate.
From 6 April 2019, however, the requirement to implement a checking system will be no more. New legislation, announced at Autumn Budget 2017, will remove the requirement for employers to check evidence of amounts spent when making benchmark scale rate payments.
Instead, employers will only need to carry out checks to ensure that employees are undertaking qualifying travel, before making payment.
What about overseas travel?
Overseas Scale Rates (OSR) are amounts that employers can pay to employees who travel abroad on business. These can also be paid without deducting tax or National Insurance contributions and need not be reported to HMRC. The amounts cover accommodation and subsistence costs. However, they are dependent on the country and city the employee visits, as well as the duration of the visit.
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