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Getting Your Chips for Free

The payment of subsistence expenses is a frequently misunderstood area that affects all sizes and forms of business. Getting it wrong can be costly for both employee and employer.

The first step is to ensure that subsistence costs are attributable to business travel. A critical concept is that such costs are necessary and that additional costs are actually incurred during the course of a journey or whilst at a temporary workplace. HMRC's own guidance states;

However, many industries, conscious of cost control and to ensure consistency amongst employees, rather than reimburse actual costs prefer to use standard meal allowances in their expense policies and therein lies the potential hazard! Without prior agreement with HMRC such payments are likely to be treated as round sum expense allowances and therefore additional pay. This would then attract both income tax and National Insurance Contributions (NICs).

So how can we ensure these payments are tax and NIC free?

Earlier this year HMRC introduced an advisory system of benchmark scale rates for subsistence payments. The aim being to give a measure of certainty and consistency between businesses. Employers can use this to make subsistence payments to employees who incur allowable business travel expenses free of tax and NICs.

The advisory system which was implemented on 6 April 2009 covers benchmark scale rates for day subsistence payments. If an employer wishes to pay subsistence to employees who have to stay overnight they can either reimburse the actual cost incurred by the employee or agree a tailored scale rate to cover meals and other expenses in a dispensation with HMRC.

What conditions apply?

The key qualifying conditions are:

• the travel must be in the performance of an employee's duties or to a temporary place of work;
• the employee should be absent from his normal place of work or home for a continuous period in excess of five or ten hours; and
• the employee should have incurred a cost on a meal (food and drink) after starting the journey so if an employee does not buy a meal or takes a packed lunch from home there is no entitlement to a tax and NIC free payment.

If a business wants to pay scale rates to its employees it can only do so tax and NIC free if it has a HMRC dispensation. We can assist you in making such an application or when relevant, reviewing your existing dispensation arrangements.

The benchmark rates

Benchmark Rates

Qualifying Travel Period	Amount (up to)
At least 5 hours - the one meal rate	£5
At least 10 hours - the one or more meal rate	£10

There are also breakfast and late evening meal rates for use in exceptional circumstances only. These are not intended for employees with regular early or late work patterns and conditions are specified. Please contact us for further information if you consider this may be of interest to you.

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