Per diems refer to the daily allowances given to employees for covering expenses during business travel. It can also be a compensation system based on the number of days worked. This system is widely used by companies and organisations to provide financial support to employees while on the road.
Per diem payments help to minimise administrative burden, as employees do not need to submit detailed expense reports for every meal or incidental expense incurred during travel. Additionally, per diems provide clear and transparent payment scales, ensuring that employees are fairly compensated for their time away from their regular workplace. By providing a fixed daily allowance, per diems offer a practical and efficient way to manage and, if necessary, reimburse business travel expenses.
HMRC (His Majesty's Revenue and Customs) per diem rates are an important factor to consider when budgeting for business travel expenses.
These rates determine the daily amount allowed for meals and incidental expenses for employees on business trips. Understanding HMRC per diem rates is essential for businesses to accurately calculate mileage and travel expenses, ensure compliance with tax regulations, and to reimburse employees appropriately.
The rates vary depending on the trip's location and duration, so it's important to stay updated with the latest HMRC guidelines. By understanding these rates, businesses can streamline the process of budgeting and reimbursing expenses for their employees' travel, ultimately helping to maintain financial transparency and compliance with tax regulations.
Spending within HMRC per diem rates, often referred to as subsistence expenses or a subsistence allowance, is not liable for taxation or National Insurance. Companies also have the optional ability to claim back any VAT spent on these business expenses.
Companies can choose to allow their employees to spend over these limits, but every time they do they’ll be subject to tax and National Insurance Contributions (NICs).
There are two options for offering employees per diems free of tax: using the benchmark scale rate payments set by HMRC, or creating and agreeing custom scale rates with HMRC.
The first option involves using the standard benchmark rates set by HMRC for various industries and job roles. These rates are pre-determined and are designed to reflect typical expenses such as travel costs, mileage allowance, and more incurred by employees in their specific roles. Employers can use these rates to provide tax-free per diems to their employees without the need for detailed record keeping.
The second option is to create bespoke rates with HMRC based on the specific needs and expenses of the employees. This involves providing evidence of typical expenses incurred by employees in their particular roles, and working with HMRC to establish customised scale rates. This can be beneficial for businesses with unique expense structures or for employees with specific needs.
Both options require employers to show evidence of typical expenses to HMRC to ensure that the scale rates accurately reflect the actual expenses incurred by employees. Offering higher rates to employees can be beneficial as it provides a more accurate reflection of their expenses, leading to higher job satisfaction and potentially lower staff turnover. Additionally, it reduces the administrative burden of tracking and reporting individual expenses.
For businesses, choosing between scale rate payments and actual expenditure reimbursement for employee expenses can be a crucial decision.
Scale rate payments (set allowances for specific expenses), offer several advantages over actual expense reimbursement. This method provides simplicity and predictability for both employers and employees. With fixed amount allowances, the administrative burden of tracking and reimbursing actual expenses is eliminated, saving time and resources. Additionally, scale rate payments offer a sense of fairness and consistency as employees receive the same set amount regardless of their individual expenses. This can also reduce the likelihood of discrepancies or disputes over expense claims.
Furthermore, scale rate payments can help control costs for employers, as they can budget fixed amounts for expenses rather than dealing with unpredictable or fluctuating actual expenses. Overall, scale rate payments offer a streamlined, cost-effective, and equitable solution for managing employee expenses.
The HMRC per diem rates consist of the daily rate and the incidental expense rate.
The daily rate covers an employee's subsistences expenses such as meals and accommodations during travel. It's meant to cover essential expenses for sustenance while away from home. On the other hand, the incidental expense rate is for small, irregular expenses that may arise during work-related travel, such as tips, laundry, dry cleaning, or taxi fares.
These rates apply to both domestic and international travel. For international travel, the daily rate may vary depending on the destination's cost of living, while the rate for incidental costs generally remains the same. It's important for employees to use these rates as guidelines for their expenses and to keep accurate records of their spending to ensure compliance with HMRC regulations.
To calculate meal costs and daily allowance rates based on the HMRC standard scale rates for locations worldwide, first determine if the scale rate payments can be applied. This includes being away from your normal workplace and incurring additional expenditure for food and drink.
The daily allowance rates vary depending on the country and location. To calculate the daily allowance rate, add the fixed meal costs together and multiply by the number of days you will be away.
For example, if the daily allowance rate for a location is £50 and you will be away for 5 days, the total amount would be £100. This can be used to calculate the total meal costs and daily allowance rates for your trip. Make sure to refer to the HMRC guidelines for the specific rates for your location.
HMRC defines a meal as a combination of food and drink, using the standard dictionary definition. In instances where employees are regularly required to finish late or start early, the +5 hour and +10 hour rate (whichever is applicable), can be paid as long as all other qualifying conditions are met.
The current rates for HMRC subsistence allowance for business-related travel within the UK are as follows:
In the instance where a scale rate of £5 or £10 is paid, but the journey lasts beyond 8pm, an additional, supplementary rate of £10 can be paid to cover additional expenses incurred as a result of working late.
In the case of international travel, HMRC provides separate meal allowance rates to accommodate the higher costs associated with meals in other countries.
HMRC outlines meal allowance rates in local currencies, making it easier to monitor spend abroad. With business expense cards from Equals Money, transacting in local currencies is simple. Employees can spend across 20 different currencies with customisable limits in over 190 countries, wherever Mastercard is accepted. Stay on budget and set card limits to reflect HMRC rates to effectively control business-wide spending and aid reconciliation.
Tax relief eligibility for meal allowances is dependent on several criteria, including the distance and duration of the travel, whether an overnight stay is necessary, and whether the expenses are incurred wholly, exclusively, and necessarily for business purposes.
When reporting HMRC subsistence allowance, it is important to adhere to the specific guidelines and regulations. This includes providing detailed records and receipts for all meal expenses, as well as documenting the duration and purpose of the business travel.
Failure to comply with these reporting requirements may result in the allowance being treated as taxable income.
