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How to use HMRC’s benchmark scale rates for subsistence expenses

14 June 14 | By: Jas Jhooty

Sandwich

Introduction

HMRC publishes a set of advisory benchmark scale rate payments that employers can use to reimburse staff for subsistence expenses when they are travelling on business away from their normal workplace. These scale rates can be paid to employees without the requirement to produce the actual receipts for meals. If the employer wishes to use this system, these rates are the maximum that the employer can pay without attracting any tax and national insurance liabilities. The employer can pay less than these rates if they want to.

The benchmark rates

The benchmark rates that were last set in April 2009 are as follows:

  • Breakfast rate up to £5.00
  • One meal (5 hour) rate up to £5.00
  • Two meal (10 hour) rate up to £10.00
  • Late evening meal rate up to £15.00

HMRC will consider revising the rates when there is a change in the scale rate of plus or minus 10% based on the change in the Consumer Price Index from when it was last revised.

Benchmark scale rate payments must be limited to three meal rates in one day or 24 hour period. A meal is defined as a combination of food and drink and would take a normal dictionary meaning.

Benchmark scale rates must only be used where all the following qualifying conditions are met:

  1. the travel must be in the performance of an employee’s duties or to a temporary place of work
  2. the employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours
  3. the employee should have incurred a cost on a meal (food and drink) after starting the journey

These benchmark scale rates would not apply to employees covered by Working Rule Agreements, for which separate specific rates are already set for particular occupations.

Subsistence payments using these benchmark scale rates made to directors and employees earning at a rate of £8,500 or more per annum still need to be reported on P11D forms unless a dispensation is agreed to cover these items.

Breakfast rate

The rate may be paid where an employee leaves home earlier than usual and before 6.00 am and incurs a cost on breakfast taken away from his home after the qualifying journey has started. If an employee usually leaves before 6.00 am the breakfast rate does not apply.

The breakfast rate is for use in exceptional circumstances only and is not intended for employees with regular early or late work patterns.

One meal (5 hour) rate

The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 5 hours and has incurred the cost of a meal.

Two meal (10 hour) rate

The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 10 hours and has incurred the cost of a meal or meals.

Late evening meal rate

The rate may be paid where the employee has to work later than usual, finishes work after 8.00 pm having worked his normal day and has to buy a meal before the qualifying journey ends which he would usually have at home.

The late evening meal rate is for use in exceptional circumstances only and is not intended for employees with regular early or late work patterns.

How to get HMRC to increase these rates

Higher tailored rates may be agreed with HMRC but if higher rates are paid without agreement with HMRC, the excess above the benchmark scale rates is liable to tax and national insurance under PAYE.

A fair and thorough sampling exercise must be undertaken of actual employee expenditure to prove to HMRC that higher rates are called for. Fixed rates for accommodation costs can also be agreed with HMRC as part of any sampling exercise.

What rates can I use if my employee is sent abroad

HMRC has recently agreed that employers may use their Worldwide Subsistence Rates when paying accommodation and subsistence expenses to employees whose duties require them to travel abroad, without the need for the employees to produce expenses receipts. Accommodation and subsistence payments at or below the published rates will not be liable for income tax or National Insurance Contributions for employees who travel abroad.

In such cases, employers need not include payments at or below the published rates on forms P11D and need not apply for a dispensation. However, if an employer decides to pay less than the published rates its employees are not automatically entitled to tax relief for the shortfall.

Incidental overnight expenses

As well as paying the above subsistence rates, employers can also pay tax free amounts of up to £5 per night for overnight stays away from home in the UK and up to £10 per night for overseas overnight stays. This tax free amount is to cover the cost of laundry, telephone calls home, buying a newspaper, etc.

If employers pays more than these limits then the whole amount becomes taxable on the employee unless there is a policy in place for the employee to reimburse any expenditure above these rates.

How emTax can help

The use of subsistence scale rates can go a long way towards streamlining your expenses procedures. If HMRC’s set limits are perceived to be too low by your organisation, our consultants can assist you in undertaking the necessary sampling exercises to negotiate higher rates for inclusion in your P11D dispensation.

We have recently been successful in negotiating with HMRC to allow the payment of very generous daily scale rates to cover both accommodation and meals costs for itinerant employees of a major construction industry client.

We are currently offering a free initial advisory visit where one of our consultants will go through our PAYE & NIC questionnaire to try to identify any areas of weakness in your current employment tax procedures. Any areas that can be improved on (e.g. by implementing the use of subsistence scale rates) will also be highlighted during this visit.

If you are interested in finding out more about how we can help you in reviewing and streamlining your expenses policies and procedures, please do not hesitate to contact us. .

NB: Please read this article on HMRC’s latest position relating to scale rates under the new automatic dispensation regime.

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