When it comes to reimbursing employees for business travel, scale rate payments offer a simplified, tax-efficient approach. Whether employees are traveling within the UK or abroad, employers can benefit from understanding the scale rate systems in place, including allowances for meals, accommodations, and incidental expenses.
Scale Rate Payments for Travel in the UK
What Are Scale Rate Payments?
Scale rate payments allow employees to receive fixed daily allowances for expenses incurred during business travel, without needing to provide detailed expense reports. This streamlined system reduces administrative tasks for both employees and employers while ensuring fair compensation.
HMRC Scale Rate Allowances
In the UK, scale rate allowances are determined by HMRC. These rates depend on the trip’s duration and location. Employers must stay informed of HMRC’s guidelines to ensure proper budgeting and avoid potential tax issues.
Importance of Compliance
Businesses that reimburse employees within HMRC’s scale rate limits can offer these payments tax-free, exempting them from both tax and National Insurance Contributions (NICs). Any payments above the allowable rates, however, will be subject to tax via P11D. It’s crucial to ensure that reimbursement practices align with these regulations to avoid penalties.
Options for Providing Scale Rate Allowances
Employers have two main options:
Benchmark Scale Rates: Pre-set rates from HMRC to cover meals, requiring minimal documentation. These are based on the length of the trip:
5 hours: £5
10 hours: £10
15 hours (and ongoing after 8 PM): £25
For qualifying journeys that extend beyond 8 PM, employers can offer an additional payment of £10 to cover the extra costs incurred due to working late. This supplementary rate can be paid on top of the standard scale rates of £5 or £10, ensuring that employees are fairly compensated for the extended working hours.
"A meal is generally defined as a combination of food and drink, following the standard dictionary definition. If employees are regularly required to start early or finish late, they can still receive the applicable over 5-hour or 10-hour meal allowances, as long as all other qualifying conditions are met."
Agreed Scale Rates: Bespoke rates that employers negotiate with HMRC, tailored to unique expense patterns within their business. You can request a bespoke rate by providing evidence of typical expenses (for example receipts)
Employees may claim tax relief on these allowances under specific conditions:
The travel must be for work purposes, not ordinary commuting.
The employee must be away from their usual workplace or home for more than 5 continuous hours.
The employee must have incurred meal costs (food and drink) during the journey and kept evidence of the expense.
Companies need to keep accurate records to ensure compliance, including receipts and details on the nature of the travel.
Employers are not required to adhere to the published rates. Employers always have the option to compensate their employees for their actual, documented expenses.
Incidental Rates
Employees who have to stay away from home overnight often incur incidental expenses for which no relief is permitted under those rules. For example, they may buy newspapers, pay for laundry or phone home. Those expenses are not incurred necessarily in performing the duties of the employment. Employers may nevertheless reimburse such incidental expenses, free of tax and NICs in addition to the scale rates allowance.
£5 per night for overnight stays in the UK
£10 per night for overnight stays outside the UK.
A benchmark rate has not been set for overnight accommodation costs in the UK.
Scale Rate Payments for International Travel
For international business travel, overseas scale rates simplify the reimbursement process by setting benchmark figures for various expenses like accommodation and meals. These rates are published by HMRC and vary by country and city, ensuring that employees are fairly compensated while keeping the process tax-efficient.
Methods for Reimbursement
Employers can choose from different methods when reimbursing employees traveling overseas:
24-Hour Rate: A comprehensive rate covering all accommodation, meal, and daily travel costs during a 24-hour period.
Room Rate Plus Meal Expenses: Employers can reimburse for actual accommodation costs and meal expenses separately, but must avoid combining the 24-hour rate with individual meal claims.
Handling Shorter Trips
For trips lasting less than 24 hours, employers can use rates for shorter durations:
Over 5-hour rate for trips between 5-10 hours.
Over 10-hour rate for trips lasting 10-24 hours.
Alternatively, employers may cover specific costs like room and meal expenses, provided they don’t duplicate payments for the same journey.
To see the rates for overseas travel click the link below:
When traveling to a location not listed, employers should use the closest available city in the same country or region.
Other Reimbursement Options
Employers can adapt reimbursement practices based on circumstances:
Host Gifts: If an employee stays with a private host, 10% of the total residual rate can be reimbursed.
Company-Provided Accommodation: Reduced rates apply when employees stay in company accommodations or serviced apartments with amenities like kitchens and laundry facilities:
for the first 7 days of any stay, 80% per day of the appropriate total residual rate
for the eighth and subsequent days, 50% per day of the appropriate total residual rate.
Scale rate payments, both for UK and international business travel, offer a clear, tax-efficient way to reimburse employees for work-related expenses. Employers can choose between fixed allowances or customized rates, ensuring simplicity, compliance, and fairness for all parties. By following HMRC guidelines, businesses can effectively manage their travel budgets while maintaining transparency and financial control.
Source: gov.uk