Subsistence expenses are a common example of expenses which employers choose to reimburse by means of a scale rate payment. The Employment Income manual (EIM) contains guidance about the evidence HM Revenue & Customs (HMRC) may require in support of a dispensation request for scale rate subsistence payments to employees travelling within the UK.
The sampling technique described in the EIM is not usually appropriate for employees who travel outside the UK, because most employers will not have enough internationally mobile employees to enable them to undertake a meaningful sampling exercise.
HMRC therefore agreed in January 2008 that employers may use benchmark rates published on the HMRC website when paying accommodation and subsistence expenses to employees whose duties require them to travel abroad, without the need for the employees to produce expenses receipts. HMRC will endeavour to update the published rates in October/November each year.
Accommodation and subsistence payments at or below the published rates will not be liable for Income Tax or National Insurance contributions (NIC) for employees who travel abroad, and employers need not include them on forms P11D. However, if an employer decides to pay less than the published rates its employees are not automatically entitled to tax relief for the shortfall. They can only obtain relief under the employee travel rules (see EIM31800 onwards) for their actual, vouched expenses, less any amounts paid by their employer. By 'vouched expenses' we mean expenses which are supported by receipts, or some other contemporaneous record of the amounts spent.
Whilst most rates are published in the local currency, or are consistently in either US$ or Euro (€), there are a number of countries where we have published a room rate in either US$ or € and the over 5 hour, 10 hour and residual rates in the local currency. The 24 hour rate will show both currencies in these cases.
These tax/NIC free amounts are in addition to the incidental overnight expenses that employers may reimburse tax/NIC free under Section 240 ITEPA 2003 and the corresponding NICs disregard (see EIM02710 and NIM06015).
Employers are not obliged to use the published rates. It is always open to an employer to reimburse their employees' actual, vouched expenses, or to negotiate a scale rate amount which they believe more accurately reflects their employees' spending patterns. Employers wishing to negotiate such an amount must of course be able provide HMRC with evidence in support of their figures.
Further guidance can be found as follows:
EIM05255 What the tables contain
EIM05260 How to use the benchmark rates
EIM05265 Employee staying as guest of a private individual
EIM05270 Employee receiving free meals and accommodation
EIM05275 Employee staying in vacant residential property
EIM05277 Airline employees - relationship with Flight Duty Allowances