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:
You make a payment to an employee to cover their business expenses.
An expense counts as a business expense if it either:
Only two types of journey (including travel abroad) count as business travel:
EIM31630: The criteria for employees' business expenses (tax)
NIM05020: The criteria for employees' business expenses (NICs)
For employees earning at a rate of less than £8,500 per year, you have:
For company directors or employees earning at a rate of £8,500 or more per year:
How a dispensation can reduce your expenses and benefits reporting
The value to use is the amount you pay to your employee.
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.
A payment to meet or reimburse an employee's private expenses counts as earnings, so:
The value to use is the amount you pay to your employee.
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:
HMRC also publishes scale rates for overseas subsistence expenses - for more information about these rates and how to apply them follow the link to EIM05250 in the 'Technical guidance' section.
For employees earning at a rate of less than £8,500 per year, you have:
For company directors or employees earning at a rate of £8,500 or more per year:
How a dispensation can reduce your expenses and benefits reporting
The value to use is the amount you pay to your employee.
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.
For tax purposes:
For NICs purposes:
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.
To check what's included in the £8,500 threshold for P11D reporting purposes, follow the link below.
Mileage expenses for business travel in employees' own vehicles
EIM31630: The criteria for employees' business expenses (tax)
NIM05020: The criteria for employees' business expenses (NICs)
EIM05200: Scale rate expenses payments - general
EIM05230: Subsistence expenses: advisory benchmark scale rate payments
NIM05680: Class 1 NICs - scale rate payments
EIM05100: Round sum allowances
