In this section:
- Providing employee expenses and benefits: an overview
- Schemes that reduce expenses and benefits paperwork
- Expenses and benefits A to Z
Expenses payments
This guide explains your tax and National Insurance contributions (NICs) obligations if you meet or reimburse an employee’s business or private expenses. It also outlines the requirements if you use a scale rate payment or round sum allowance to cover employee expenses.
On this page:
- Payments to meet or reimburse business expenses
- Payments to meet or reimburse private expenses
- Scale rate payments
- Round sum allowances
- Understanding the £8,500 threshold
- More useful links
- Technical guidance
Payments to meet or reimburse business expenses
Definitions or restrictions
You make a payment to an employee to cover their business expenses.
An expense counts as a business expense if it either:
- relates to business travel as defined below (this excludes business travel in an employee’s own vehicle, for which separate rules apply – see the ‘More useful links’ section)
- meets the criteria for other business expenses – for details, follow the links below
Only two types of journey count as business travel:
- journeys forming part of an employee's employment duties
- journeys related to an employee's attendance at a temporary workplace
EIM31630: The criteria for employees’ business expenses (tax)
NIM05020: The criteria for employees’ business expenses (NICs)
What to report, what to pay
For employees earning at a rate of less than £8,500 per year, you have:
- no reporting requirements
- no tax or NICs to pay
For company directors or employees earning at a rate of £8,500 or more per year:
- report on form P11D - section N - unless you have a dispensation covering this item
- you have no tax or NICs to pay
How a dispensation can reduce your expenses and benefits reporting
Work out the value to use
The value to use is the amount you pay to your employee.
Payments to meet or reimburse private expenses
Definitions or restrictions
You make a payment to an employee to cover their private expenses.
Any expense counts as private if it doesn’t meet the definition of a business expense outlined in the previous section.
What to report, what to pay
A payment to meet or reimburse an employee’s private expenses counts as earnings, so:
- add it to your employee's other earnings
- deduct and pay PAYE tax and Class 1 NICs using your usual payroll procedures.
Work out the value to use
The value to use is the amount you pay to your employee.
Scale rate payments
Definitions or restrictions
You use a scale rate payment to meet or reimburse an employee's business expenses - subsistence expenses are a common example.
The advantage of this arrangement is that in agreeing a scale rate payment, HMRC will discuss with you how you can check receipts on a periodic random sample basis, rather than by checking every receipt, to prove that each payment relates to a business expense. You can also apply to include an agreed scale rate payment in a dispensation, which means you don’t need to report the payments on form P11D at the end of the tax year.
To agree the level of your scale rate payment with HMRC, you can either:
- provide HMRC with a sample of evidence (receipts, etc) showing that the proposed scale rate payment reflects what employees are actually spending
- use advisory benchmark scale rates that HMRC provides for subsistence expenses
For more information on these options, follow the link to EIM05200 in the 'Technical guidance' section.
What to report, what to pay
For employees earning at a rate of less than £8,500 per year, you have:
- no reporting requirements
- no tax or NICs to pay
For company directors or employees earning at a rate of £8,500 or more per year:
- report on form P11D - section N - unless you have a dispensation covering this item
- you have no tax or NICs to pay
How a dispensation can reduce your expenses and benefits reporting
Work out the value to use
The value to use is the amount you pay to your employee.
Round sum allowances
Definitions or restrictions
You pay a round sum allowance to an employee.
A round sum allowance is an amount paid to an employee regardless of how they will spend it. In this sense it differs from reimbursements and scale rate payments that are calculated to cover expenditure actually incurred by an employee.
What to report, what to pay
For tax purposes:
- add the full amount of the round sum allowance to the employee’s other earnings when deducting and paying PAYE tax through your payroll
For NICs purposes:
- add the amount of the round sum allowance – minus any specific and distinct business expenses covered by it – to the employee’s other earnings when deducting and paying Class 1 NICs through your payroll
Work out the value to use
For tax purposes, the value to use is the amount of the round sum allowance. For NICs purposes you can subtract from this any specific and distinct business expenses covered by the allowance.
Understanding the £8,500 threshold
To check what's included in the £8,500 threshold for P11D reporting purposes, follow the link below.
More useful links
Mileage expenses for business travel in employees’ own vehicles
Technical guidance
EIM31630: The criteria for employees’ business expenses (tax)
NIM05020: The criteria for employees’ business expenses (NICs)
EIM05200: Scale rate expenses payments - general
NIM05680: Class 1 NICs – scale rate payments
EIM05100: Round sum allowances
