Your UK employees will undoubtedly have some travel expenses. You will most likely be in a fix if you're not sure what exact travel allowances and subsistence rates are permitted.
Additionally, how do you go about applying the correct rates if you've never employed in the UK before?
We are here to help.
If you're having trouble understanding per diem rates in the UK, we've created this complete guide (plus eight facts!) to help you better understand correct rates as an overseas employer. Keep reading to learn more!
Rules for business expenses
As a generalized rule, something only counts as a business expense if your employee needs to travel to complete a task for their job. As an employer, you don't have to deduct, pay taxes, or National Insurance on anything that qualifies as a business expense.
However, you do have to make sure that it meets all of the HMCR (HM Revenue and Customs) criteria for both employee's business expenses tax and employee business expenses (National Insurance.)
Travel expenses are only permissible if:
- The employee has to make the journey in the performance of the duties of their employment. In some situations, this may apply where the duties that they're being asked to complete essentially involve traveling, such as a delivery driver.
- Compulsory travel that your employee has to make from a place that they have to attend for their duties. This can include trips from the office they work at to visit a customer or another type of temporary workplace.
Temporary vs permanent workplaces
In order to understand how to determine travel expenses for your employees, it's imperative that you understand the differences between a temporary workplace and a permanent workplace.
A permanent workplace is a location where your employee regularly goes to work. This location could be an office, a shop, a factory, or another type of location. However, this will always be where you (the employer) expect your employee to be working from.
There may be several permanent workplaces that an employee reports to. In such cases, they can travel between these two locations throughout the week on an ongoing basis.
A temporary workplace is where you would find your employee attending irregularly or for a specific period of time. If your employee normally works in a factory, but they need to go to an office location for new training, the office location would be considered their temporary workplace location.
A workplace isn't considered to be temporary if your employee is expected to be continuously working at the location for more than 24 months. (HMRC deems a location a “workplace location,” if an employee happens to be spending 40% of more of their time there.)If an employee is spending less than 40% of their time at a temporary workplace, you don't have to worry about considering the 24-month rule.
HMRC in the UK
HM Revenue and Customs is a government agency in the UK that modulate the payroll system, the sets of rules, and the travel allowance amounts for a company's employees. If any expenses go over the HMRC limits, they're considered to be a taxable benefit to your employees.
How to report and pay
If subsistence and travel expenses happen to exceed any of the max allowances that the HMRC has set into place, you legally have to include these payments into the payroll for your employee. This amount must be included in both insurance and taxes that are withheld from the employee.
That's why it's extremely important to have the proper amounts that are allowed by the HMRC to ensure that your company is avoiding non-compliancy with the payroll laws and the tax laws in the UK.
8 Facts about per diem rates in the UK
Depending on the traveling your employee does for business, the per diem rates that you're allowed to provide your employees vary. Here's everything you need to know based upon the type of traveling your employee is doing:
Day travel allowance (With no overnight stay)
1. Employees can claim up to £4.50 for the cost of their breakfast if
- They leave home at least 90 minutes before they normally do while they're on company business
- Did not eat breakfast at home
- Will be away for more than 12 hours from their home
2. Employees can claim up to £4.50 for the cost of lunch or an extra meal if they:
- Will be away from their normal office location for more than five hours and
- They weren't provided with lunch or another meal
3. Employees can claim up £9.50 for the price of two meals if:
- They'll be away from their regular office location for more than ten hours
- They weren't provided with any meals. However, if they were provided with lunch, they can claim up to £4.80 for the additional meal
Overnight stay allowance
Is your employee traveling overnight for business? Here's what you need to know about the allowance you're legally allowed to provide your employee with:
Depending on the location of where your employee is staying, the allowance you're legally allowed to give them will vary. Here's what you need to know:
4. The maximum allowance for a hotel, bed, and breakfast say are £125 per night if the traveler is staying at a London based establishment. However, it's only £85 per night if they're staying at a location that's based outside of London.
Expenses and meals
5. For every 24 hours that an employee stays away from their normal office location, an employee can claim a maximum of:
- £4.50 for the cost of their lunch, if it wasn't provided
- £14.50 for the cost of their dinner, if it wasn't provided
- £5 for incidentals, such as laundry
Staying with family and friends
6. If your employee has made their own personal arrangements, every 24 hours they spend from their normal office location, they can claim up to £25. Keep in mind that this amount is taxable, which means that the expenses that are paid should be made out on a taxable expenses claim form.
Air and rail travel
If your UK employee is traveling via air or rail for their business, here's the following information that you should be aware of:
7. For traveling via rail, all your employees should travel via standard class unless there's a clear need for traveling by first class. Some examples where an employee made need to travel first class include:
- No standard class facilities that accommodate special need requirements or disabilities
- No standard class seats left on the train that your employee had to travel
- First-class seats happen to be cheaper than standard class seats
8. For air traveling, all your employees should travel using economy class unless there's a clear requirement for your employees to travel via first-class (listed above.)
Scale rate payments
Scale rate payments are when you provide your employees with a specific amount of money to pay for ordinary business expenses such as meals and travel. Your finance team's primary task is to ensure employees have spent the scale rate payment on needed business expenses. If done so, they don't have to go through and check all of their receipts.
Legally, you can create a scale pay by:
- Using HMRC's benchmark scale rates for any subsistence expenses
- Agreeing on a scale rate with HMRCs by showing evidence of typical expenses. This can be done by showing them example receipts from previous employee business travels
Any scale rate payments you make have to be reported on a P11D form unless they're considered to be exempt or they're no more than the agreed-upon benchmarked scale rate. In this case, you don't have to include these payments in your annual reports. In addition, you also don't have to pay any taxes or National Insurance when you're reporting scale rate payments.
Note: The HMRC also provides employers with benchmark rates if their employees happen to be traveling outside of the UK.
Your per diem solutions
The vast number of per diem rates and travel expense rules in the UK can really make it confusing to understand how you should go about making the right inclusions and calculations with payroll. This daunting task is why our business offers streamlined travel expense management, to ensure your company always stays compliant.
Are you looking for help to manage your company's travel expenses? Click here to schedule a demo.