NIM06170 - Class 1 NICs : Expenses and allowances : Scale rate payments

Many employers pay or reimburse expenses incurred by employees in carrying out their employment at scale rates. Subsistence payments are a common example.

If the scale rate is calculated to do no more than reimburse the average expenditure and is not intended to provide a profit element, then it will not be regarded as a round sum allowance (see NIM06160). The employer can exclude any such payment from the calculation of earnings for the purposes of NICs by virtue of regulation 25 and paragraph 9 of Part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001.

In general, scale rate payments are only appropriate for expenses that are widely incurred in broadly similar amounts but which can be difficult to get receipts for – for example, laundry costs or subsistence.

They should generally be set at a fairly modest level which, taking one day with another, will be sufficient to cover relevant expenses. They should not be pitched at a level to cover the highest amount that an employee might spend.

Scale rate 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 3(1)(a) of the Social Security Contributions and Benefits Act 1992.

For further guidance on scale rates see NIM05680.