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Taxation of Travel Expenses – Benchmark scale rates for day subsistence
Monday, April 20th, 2009
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In Revenue & Customs Brief 24/09, HMRC introduced, from 6 April 2009, an advisory system of benchmark scale rates that employers with dispensations may use without having to agree specific scale rates after conducting a detailed sampling exercise. The new arrangement applies initially to employers who are applying for their first dispensation or renewing a dispensation.
The advisory system provides benchmark scale rates for day subsistence payments only. With respect to overnight accommodation and subsistence, it is open to employers to reimburse the actual costs incurred by employees or agree scale rates within the dispensation.
HMRC’s existing requirement is for employers to undertake a sampling exercise in order to agree scale rates within a dispensation. As such an exercise can be time-consuming and expensive, the advisory system of benchmark scale rates is intended to avoid the need for such a sampling exercise.
Use of the advisory scales rates is not mandatory. Employers may alternatively reimburse the actual costs incurred or apply to HMRC to agree a higher rate, based on the evidence provided by a sampling exercise. However, when an existing dispensation comes up for renewal, which usually occurs every five years, the employer may choose to use the benchmark scale rates or continue with the existing agreed scale rates. At the time, HMRC may review the existing scale rates and, if they are inconsistent with the rates agreed generally with other employers, the employer may be required to conduct a sampling exercise if the benchmark rates are not used.
Benchmark rates and payment conditions
To make use of the benchmark rates, an employer applying for a dispensation for the first time must simply notify HMRC before using the system by ticking the appropriate statement/box on form P11DX Dispensation for expenses payments and benefits in kind, used to apply for a dispensation. By ticking the box, the employer is confirming that the benchmark scale rates will be paid for day subsistence, that adequate management controls (e.g. routine checks) are in place to ensure that the payments will only be made where the qualifying conditions are met, and that records are maintained that adequately demonstrate that the employees receiving the payments were entitled to do so.
If an employee has incurred expenses while travelling on a qualifying business journey, the employer will be able to make subsistence payments up the limit of the appropriate rate. If the rate is exceeded without having agreed a higher rate with HMRC, the excess is liable for tax and NICs. The rates do not apply to employees covered by Working Rule Agreements, where separately agreed rates already apply.
The four advisory rates are:
1. Breakfast rate (irregular early starters only) – up to £5.00, where the employee leaves home earlier than usual and before 6.00 am and incurs a cost for breakfast taken away from home. However, if the employee regularly leaves home before 6.00 am because, for example, of working an early shift, the conditions are not met.
2. One meal rate (five-hour rate) – up to £5.00, where the employee has been away from home or the normal place of work for a period of at least five hours and has incurred the cost of a meal.
3. Two meal rate (ten-hour rate) – up to £10.00, where the employee has been away from home or the normal place of work for a period of at least ten hours and has incurred the cost of a meal or meals.
4. Late evening meal rate (irregular late finishers only) – up to £15.00, where the employee has to work later than usual, finishes work after 8.00 pm having worked the normal day and has to buy a meal which would usually have been taken at home.
If an allowance under the five or ten hour rule is paid, the late meal allowance may also be paid if the employee finishes work after 8.00 pm and buys a meal that would usually have been taken at home. However, if the employee regularly finishes work late because, for example, of normally working the afternoon or evening shift, the conditions for the late evening meal rate are not met.
HMRC will review the rates annually and will consider revising them if there has been a change in the scale rate of +/-10% (based on the Consumer Price Index) from when it was previously reviewed.
These are national rates and there are no special regional rates, e.g. for London. Employers are still entitled to demonstrate the need for higher rates by undertaking a sampling exercise.
In summary, the conditions for using the benchmark rates are:
- The travel must be in the performance of the employee’s duties or to a temporary place of work. It must not be ordinary commuting or private travel.
- The employee should be absent from the normal place of work or home for a continuous period in excess of five hours or ten hours.
- The employee should have actually incurred a cost for a meal* after starting the journey. If no meal is purchased, or the employee takes a packed lunch, the conditions are not met.
- The early starter and late finisher rates are for use in exceptional circumstances only and not intended for employees with regular early or late work patterns.
- Scale rate payments must be limited to cover no more than three meals* in one day (or 24 hour period).
- Where employees are required to start early or finish late on a regular basis, the five-hour rate or ten-hour rate could be paid if all of the other qualifying rules are satisfied.
* A meal is defined as a combination of food and drink.
Family and friends allowance
No scale rate for staying overnight with family or friends when away on business is included in the advisory rates. HMRC now takes the view that there is no legal basis for giving tax relief as there is no link with any specific underlying expense. A scale rate for this purpose will not be included in any new dispensations and any scale rate in an existing dispensation will be withdrawn when it is next reviewed.
Further information:
Revenue & Customs Brief 24/09 – Benchmark scale rates for day subsistence
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