An employer may meet the cost of business travel by
- reimbursement of actual costs
- scale rate payments, or
- round sum allowances.
Reimbursement of actual costs
A reimbursement by the employer of the actual and necessary costs incurred by an employee on business travel can be subject to a dispensation and will not attract a liability for Class 1 NICs. There is a different system for mileage payments.
Scale rate payments
Scale rate payments are amounts paid by the employer to meet expenses necessarily incurred by the employee on business travel and that are calculated to do no more than reimburse the employee for actual expenses that the employee incurs. The example of Thomas at paragraph 9.6 in Booklet 490 shows a scale rate payment.
There is no liability for Class 1 NICs on making a scale rate payment and no requirement to operate PAYE.
The payments must be reported on form P9D or P11D as appropriate unless an Officer of HMRC has granted a dispensation.
Round sum allowances
A round sum allowance is an allowance paid to an employee, commonly in advance, that is not calculated to match the necessary expenditure to be incurred by the employee on business travel. The example of Tracy at paragraph 9.6 in Booklet 490 involves the payment of a round sum allowance.
Round sum allowances should normally be subject to PAYE and will attract a liability for Class 1 NICs except to the extent that a specific and distinct business expense can be identified.
If the round sum allowance is clearly meant to do no more than reimburse the employee for the necessary costs of the business travel an Officer of HMRC can be asked to authorise the employer to pay it without deducting tax under PAYE. The procedure is explained at paragraph 9.6 of Booklet 490. The allowance must still be returned on form P9D or P11D as appropriate.
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