EIM05200 - Employment income: scale rate expenses payments: general

Section 62 ITEPA 2003

Many employers pay or reimburse, at scale rates, expenses incurred by employees in performing their duties. Subsistence payments are a common example.

A scale rate payment which is calculated to do no more than reimburse the expenditure incurred by employees on allowable expenses will not be regarded as a round sum allowance ( EIM05100). The employer can be authorised to make such payments without deduction of tax under PAYE. See Booklet 490, Section 9.6 onwards.

However, it is important that you only apply that treatment to appropriate items. In general, scale rates are only appropriate for expenses which are widely incurred, in broadly similar amounts, but for which it is often difficult to get receipts. For example subsistence, or the expenses of cleaning uniforms or protective clothing (see EIM32465). Scale rates should be set at a fairly modest level which, taking one day with another, will be enough to cover the relevant expenses. They should not be pitched at a level to cover the highest amount that an employee might spend.

And scale rate expenses payments should only be paid on days when the employee has incurred an allowable expense. A “scale rate payment” which is paid irrespective of whether the employee has incurred an allowable expense is simply a payment of earnings within Section 62 ITEPA 2003 (see EIM05100).

Mileage allowance payments made to employees who use their own vehicle or bicycle for business travel should be dealt with under the approved mileage allowance payments scheme (see EIM31250 onwards).

See also:

Non-allowable incidental overnight expenses

Scale rate expenses payments, as described above, relate to items for which employees are entitled to tax relief under the rules in, principally, Sections 336 to 338 ITEPA 2003 (see EIM31800 onwards). However, employees who have to stay away from home overnight often incur incidental expenses for which no relief is permitted under those rules. For example, they may buy newspapers, pay for laundry or phone home. Those expenses are not incurred necessarily in performing the duties of the employment, and so do not qualify for tax relief. Employers may nevertheless reimburse such incidental expenses, free of tax and NICs, within the limits set out at EIM02710 onwards. Those reimbursements can be made in addition to any agreed scale rate payment for allowable expenses.