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Providing employee expenses and benefits: an overview
Schemes that reduce expenses and benefits paperwork
Expenses and benefits A to Z

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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.

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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.

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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.

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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.

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