It has almost been 3 months since the start of the 2016/17 tax year. Contractors who are eligible to claim subsistence (e.g. those who are working in temporary workplaces for less than 24 months and outside of IR35) have been able to further reduce their administrative work by utilising HMRC Benchmark Rates.

From 6 April 2016, employers who wish to pay or reimburse expenses may use the benchmark rates set out in the Income Tax (Approved Expenses) Regulations, without needing the prior approval of an officer of Revenue & Customs.

These regulations set out the rates that employers can use for payment or reimbursement of employees expenses, where the relevant qualifying conditions are met. The regulations replace the previously published benchmark scale rates.

The new Benchmark Rates are set as follows:

Minimum journey time Maximum amount of meal allowance
5 Hours £5
10 Hours £10
15 Hours (and ongoing at 8pm) £25

 

Where a scale rate of £5 or £10 is paid and the qualifying journey in respect of which it is paid lasts beyond 8pm; a supplementary rate of £10 can be paid to cover the additional expenses necessarily incurred as a result of working late.

Benchmark scale rates must only be used when all the qualifying conditions are met. The qualifying conditions are:

  • The travel must be in the performance of an employee’s duties or to a temporary place of work, on a journey that is not substantially ordinary commuting.
  • The employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours.
  • The employee should have incurred a cost on a meal (food and drink) after starting the journey and retained appropriate evidence of their expenditure.

It is also worth noting that HMRC’s scale rates are only payable when you, as an employee of your company, have to buy a meal to perform your duties. You are not supposed to pay a scale rate if you have a homemade lunch or working from home.

Points of interests:

  • Proper receipts must still be kept even when applying the Benchmark rate
  • The receipts must show food AND drink to qualify as a meal
  • The over 15 hour rate for subsistence will almost always apply where an employee is required to stay away overnight, provided the cost of any meals is not also included in an accommodation payment or if the cost of an evening meal or breakfast is reimbursed on an actual basis.
  • A benchmark rate has not been set for overnight accommodation costs. Employers wishing to agree a rate with HMRC for overnight accommodation will need to apply using the bespoke rate process.
  • If a higher amount is paid without agreeing a bespoke scale rate with HMRC, the excess should be subject to tax and NICs.

If you wish to apply the Benchmark Rate for subsistence expenses, please contact us. Your accountant will be able to explain to you if your expenses have met the relevant qualifying conditions, how to apply the scale rate, what records and supporting document you will need to keep, as well as the 24 months / 40% and IR35 rules when determining temporary place of work.

Source information – https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim30240