HMRC - Overnight and Subsistence Expenses

HM Revenue and Customs (HMRC) are well known for their dislike of claiming expenses without complete documentation but the reality, as every businessperson knows, is that maintaining complete and accurate documentation for all transactions is a practical impossibility.

HMRC do recognise this and have recently revised their guidance on claiming reimbursement of employees’ expenses, where there is no documentation, by the use of ‘scale rates’ of reimbursement.

One of the core principles behind the use of a scale rate is that the expenditure must have occurred. So, for example, where a flat rate daily subsistence allowance is paid but the actual expenditure incurred is less than the allowance, this creates a tax liability in the hands of the employee.

HMRC had proposed that expenses could be reimbursed, without the need for the retention of detailed receipts by all employees, if a sampling procedure were carried out whereby ten per cent of all employees (chosen at random) were selected and required to keep detailed records of expenses for a month and those expenses were then used to calculate the scale rate for employees in general. By creating the new guidance, HMRC are tacitly recognising that this approach was too complex to be workable. The need for a comprehensive internal benchmarking exercise has therefore been removed. However, such an approach needs to be adopted if an employer wishes to agree with HMRC a ‘bespoke’ flat rate allowance, which it is possible to do.

It is worth mentioning that payments of incidental expenses (within tight limits) connected with business travel (such as the purchase of newspapers when away) are normally allowable for tax purposes despite not being business expenditure. However, the maximum sums which can be reimbursed for incidentals are only:

  • £5 per night for overnight stays in the UK; and
  • £10 per night for overnight stays outside the UK.

Any expenditure on incidentals in excess of these amounts makes the whole of the payment (not the excess over the limit) taxable as income in the hands of the employee.

The amount that can be claimed by home workers, by way of reimbursement of their additional expenses for working at home is £3 per week.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.