Normally round sum business expenses payments paid to directors and employees are taxable but there’s an exception for subsistence allowances. What’s the maximum that can be paid tax and NI free?
Exempt scale payments
Until 6 April 2016 if you wanted to pay your employees tax and NI-free subsistence payments using HMRC concessionary benchmark rates, you needed to obtain its approval first. This entailed carrying out a sampling exercise of employees’ subsistence expenditure to ensure the conditions for the payments were met. The position is now more straightforward.
Exemption
The benchmark rates were formalised in legislation and are covered by the general exemption which has applied to employees’ business expenses since 6 April 2016. This means it’s not necessary to ask HMRC for approval before paying them and only minimal ongoing checks are required.
No more checking
Although the regulations require your employees to have bought at least one meal they do not, as the old rules did, require that this must include food and drink. However, since 2018 there’s no need for employers to check how the employee spent the allowance.
How much?
While the rates payable under the new regulations are the same as they were up to April 2016 the conditions which apply are slightly different. For 2020/21 the benchmark rates and conditions 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 where either the £5 or £10 rate is paid and the trip ends later than 8.00pm.
Example. An employee has a late business meeting. He leaves the office at 3.00pm and arrives home, direct from the meeting at 8.30pm. The trip exceeds five hours (but not ten) so you can pay him £5, plus an extra £10 tax and NI free, because the trip ended after 8.00pm.
No salary sacrifice
Until 6 April 2016 employers could use benchmark payments in a salary sacrifice arrangement. This involved paying employees who often travelled on business the tax and NI-free benchmark payments in exchange for them giving up an equal amount of salary. The effect was to reduce employers’ NI costs and increase the employees’ take home pay.
Tip 1. While benchmark payments aren’t allowed in a salary sacrifice arrangement they can be paid as an incentive. For example, if you don’t currently pay employees a subsistence allowance, or only pay modest actual costs, you can offer benchmark scale rates as a tax-efficient perk.
Tip 2. You can even offer employees benchmark payments instead or as part of a tax-efficient pay rise. As long as the employee has no right to receive extra salary as an alternative, they won’t fall foul of the salary sacrifice rule.
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.