Where an employer reimburses employees set amounts of cash to pay for business expenses like travel and meals, these are known as scale rate payments. HMRC publish advisory benchmark scale rate payments that can be paid in relation to qualifying travel, tax and NI free, without the requirement to produce receipts. The employer can pay less than these rates if they wish if they pay more, without agreeing a higher bespoke rate with HMRC, the excess is subject to tax and NI.
Previously, approval to use scale rate payments was granted via a dispensation, however, following the removal of these in 2016, new legislation made their use statutory.
In order to qualify for this statutory exemption, the travel must be in the performance of an employee’s duties or to a temporary workplace, with the employee being absent from his normal place of work or home for a continuous period of five hours or more. The employee should also have actually incurred a cost, e.g. paid for a meal (food and drinks) after starting the journey.
The benchmark rates for subsistence related to travel within the UK are:
Breakfast – up to £5.00
One meal (5 hours) – up to £5.00
Two meals (10 hours) – up to £10.00
Late evening meal – up to £15.00
For international travel, worldwide room rates and subsistence costs are also published by HMRC (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/711309/2014_Worldwide_subsistence_rates.pdf).
Although paying benchmark scale rates reduces the admin burden of checking receipts before paying expense claims, HMRC do still require the employer to keep sufficient records to demonstrate that the employee is entitled to such a payment. This is an area that we have seen HMRC reviewing and they are looking to ensure that there is a reasonable checking system in place. This means someone other than the employee incurring the expense being responsible for ensuring that the payment relates to qualifying travel and that the employee actually incurred a cost. For example, this could involve checking timesheets or attendance records and transport and hotel bookings. It would be good practice to collect random receipt samples at regular intervals to confirm a cost is being incurred.
The level of checks required will vary depending on the size of the business and frequency of claims. Should you require guidance on record keeping for your business, please contact Charlotte Edwards (firstname.lastname@example.org) or your usual AAB contact.
To find out more about Charlotte and the Payroll and Employment Taxes Team, click here.