Five years ago HMRC introduced flat rate tax free allowances that employers could pay their staff when they travel on business. The rates haven’t increased since. Is there still room for you to gain from these?
Tax neutral transactions
Generally speaking, where an employee pays for business-related travel expenses they can claim a tax deduction. And where you reimburse them for the expense this counts as their taxable income. From the employee’s point of view the position is tax neutral. Despite this, HMRC expects you to report the payments involved on Form P11D, and for the employee to declare the same figures on their self-assessment tax return. It all seems a waste of effort.
Five years ago HMRC took steps to cut some of this red tape. Since then employers can pay tax and NI-free meal allowances, so-called benchmark subsistence payments, to employees and these can be completely ignored for P11D and self-assessment purposes. The benchmark rates are:
- £5 for breakfast if the business journey starts before 6am
- £5 if the employee spends more than five hours away and buys one meal
- £10 if they’re out for more than ten hours and they buy two meals
- £15 if they are out beyond 8pm, and buy an evening meal.
Despite inflation running at around 3% per year the rates haven’t increased since they were introduced. The maximum payment per day remains at £25
There’s no doubt that paying the benchmark subsistence allowances instead of reimbursing your employees’ actual costs can save you and them time and effort in keeping records and having to report the figures to HMRC. But if the allowance amounts to more than you currently pay your workers for meals, you’ll be worse off.
Tip. You don’t have to pay the full benchmark rate to qualify for the tax and NI exemption. Anything up to the maximum for each meal allowance and within the daily maximum will qualify.
In view of our comments so far you might have come to the conclusion that benchmark payments aren’t much use other than for cutting back on a bit of admin. But actually they could be used to provide an HMRC-subsidised pay rise, saving both you and your workers tax and NI.
Example. Jim is one of your sales reps; sales are down, meaning his earnings are too. You can’t afford to pay him more. But you can offer him the benchmark scale rates instead of reimbursing him actual meal costs. As he’s on the road most days you could pay him around £2,500 tax and NI-free a year in allowances. An equivalent taxable pay rise would set you back £4,183. Jim’s happy and so are you!
Tip. While it’s a requirement that Jim buys some food with the benchmark payment (how HMRC monitors this we don’t know!), this doesn’t have to be any more than a packet of crisps and a bottle of water.Whatever he doesn’t spend is his to keep tax and NI-free.