As an employer you don’t want to waste valuable time on avoidable admin tasks such as processing scores of expenses claims for employees’ subsistence claims. Might benchmark rates be a viable alternative?
Subsistence
As an alternative to reimbursing your employees’ subsistence costs, which might run into a long catalogue of snacks, caffeine, congestion charges etc., you can instead pay them tax and NI-free amounts at HMRC’s benchmark rates of up to £25 per day. This avoids the need to obtain receipts for tiny amounts of expenditure and can even be a useful tax-free perk to offer employees.Tip.You don’t have to use benchmark rates for every employee or for each business trip and the payments don’t have to be declared onForm P11D.Trap.Benchmark payments can’t be used with a salary sacrifice arrangement, i.e. paying employees the tax and NI-free benchmark payments in lieu of salary.
Conditions
The benchmark rates can be paid in respect of an allowable business journey during the day only, when the following qualifying conditions are met:
- the travel is in the performance of an employee’s duties or to a temporary place of work
- the employee is absent from the normal place of work or home for a continuous period of at least five hours; and
- the employee incurs the cost of a meal (meaning food and drink) after starting the journey.
Tip. There is no minimum spend for the meal and the employer doesn’t have to verify how the whole subsistence payment is spent. Trap. The benchmark rates don’t cover meals consumed at home, ingredients purchased to make a meal, or meals provided on a training course or at a conference. The benchmark rates are:
- £5 where the business trip lasts at least five hours in a day
- £10 if it lasts at least ten hours
- £25 if it lasts at least 15 hours and ends after 8.00pm
- £10 supplementary rate where either the £5 or £10 rate is paid and the trip ends later than 8.00pm.
Valid expense?
Rather than having to check all the details, you are only required to ensure that qualifying travel is undertaken and be certain that no one could have reasonably suspected otherwise, i.e. there is an implicit level of trust involved. Typical supporting evidence that a meal expense has actually been incurred might include a diary of establishments visited or a credit card statement.
Example. Ken is meeting a client over 100 miles away at 6.00pm, so he leaves the office at 3.30pm. He arrives home, direct from the meeting, at 10.00pm. You can pay him £15 tax and NI free, as the trip exceeds five hours and ends after 8.00pm.Tip.An employer may choose to pay blanket higher rates, but the excess will be liable to tax and NI unless covered by a bespoke arrangement with HMRC or an industry-wide working agreement (seeThe next step).
Is it enough?
As these rates haven’t been increased since their introduction years ago, they don’t cover very much given the recent inflationary pressures. Employees can make a specific claim to HMRC for any shortfall where they keep receipts (seeThe next step), although they will be better off if you make full reimbursement, which of course is deductible against profits.
There’s no need to ask for HMRC’s permission before paying the benchmark rates. However, as they’re not exactly generous, it might be fairer to reimburse your employees’ actual costs where the rates are inadequate as long as the necessary evidence is retained.
The next step
Claiming relief for expenses
HMRC’s information on working agreements
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.