Today we heard the news that passengers returning to the UK will no longer have to take the more expensive PCR test, will that mean more travel for businesses in the coming months or has Covid changed this forever?
It is too early to say but we are seeing a gradual return to business travel within the UK. This means businesses will be re-imbursing their employees travel costs.
So, what can you pay your employees, what is the best and the most tax efficient method?
This a popular question asked by clients.
You do not want your employees to be out of pocket but also want to make sure you are being tax efficient
Can the business re-imburse all the travel expense?
The short answer is yes but the claim for any expense must be purely for business.
Then there is the question of what is the simplest way to do this without burdensome paperwork.
There are couple of ways:
- Re-imburse actual expense
HM Revenue & Customs (HMRC) will allow you to repay your employees any expense that in incurred “wholly, exclusively and necessarily” in course of conducting their jobs.
To re-imburse the employee fully make sure you do the following:
- Tell your employee to keep receipts for each and every expense
- Have an internal system of verifying and approving the claims before making the payments
- What is Per Diem?
As an alternative you can provide a set amount of cash to pay for common expenses whilst travelling.
Small expense such as drinks, snacks, lunches etc are normal but keeping hold of receipts (if you get one at all due to covid) can be difficult.
That’s when Per Diem comes in, the phrase comes from Latin to mean “per day”.
It is a fixed amount set by HM Revenue & Customs (HMRC), paid by an employer to an employee, and often referred to as “scale rate.”
The benchmark scale rate is fixed but may change, especially in inflationary times. The scale rates are there to cover subsistence during travel but any additional items such as buying newspapers are not covered.
If the employee spends the scale rate payment on the items it covers, only a random check of receipts will be necessary.
Records you need to be keep under the Scale Rate system
HMRC accepts that it is not always practical to keep all the receipts whilst travelling. They will accept evidence in the form of a sampling exercise.
The sample must be:
- A random sample
- Cover at least 10% of all eligible employees
- Must be for a complete month
Periodically you should carry out a sample exercise to ensure that the scale rates are still appropriate.
How to operate the Scale Rate system
As an employer you can set up a scale rate payment either by:
- Agreeing a scale rate with HMRC that applies to your business. This will involve you writing to your PAYE office and suggesting the rates that would be relevant to your business. You will need to give your reasoning and provide evidence for this.
- Use the HMRC benchmark scale rates. These apply when the employee is away for 5 hours or more. The rates for travel within the UK are:
- £5 for travel of 5 hours or more
- £10 for travel of 10 hours or more
- £25 for travel for 15 hours or more taking over 8pm
Which method you apply will depend entirely on your business and whether the benchmark rates are enough.
What about the travel cost?
The scale rate does not include the actual travel. So long as a receipt is kept you can re-imburse say the cost of the train ticket or taxi.
Employees using their own car can make a claim using the HMRC approved mileage rates.
HMRC mileage rates and how it works illustrates when to claim mileage.
Exemptions
HMRC sets out certain specific exemptions when paying your employees travel expenses. The following payments can be made without any tax implications, but receipts (where applicable) should be kept.
- A work bus service
- A taxi home after then occasional (not regular) late night at work
- Travelling to work due to industrial action disrupting public transport
It is important that you stick to the rules relating to re-imbursement of travel and subsistence expenses.
If you reimburse more than the necessary costs, the additional amount will count as earnings and will :
- Be added to salary
- PAYE and National Insurance will be deducted.
HMRC can be quite pedantic about these issues, any errors could be discovered during a regular PAYE audit. Ideally your processes and systems should be precise and well documented.
If you do not have a system, Myers Clark can offer a bespoke PAYE review service. We will examine your processes for dealing with employee expenses and whether it will meet HMRC scrutiny. We can extend this to look at your overall payroll process.
If you need advice in this area, please contact your normal manager at Myers Clark or Priya who also heads our payroll department at priyar@myersclark.co.uk