Changes announced in 2017 Autumn Budget effective from 6 April 2019
A welcome announcement was made by HMRC in the 2017 Autumn budget, that, with effect from 6 April 2019, the requirement for employers to check receipts for expenses paid under the HMRC benchmark subsistence scale rates will be abolished.
Currently, employers who use HMRC’s benchmark subsistence scale rates, or bespoke scale rate payments specifically agreed with HMRC, or industry-wide scale rates, are required to have a system in place to evidence that the employee has incurred subsistence expenses when travelling on a qualifying business journey. This means checking that there is a receipt for food and/or drink which has been purchased by the employee during the qualifying journey. The employee does not need a receipt for the whole allowance paid, but needs to evidence that they have incurred some cost on food and/or drink whilst travelling. The employer must carry out and evidence regular random sample audit checks to verify that the procedures in place are effective and meet HMRC’s expectation.
From 6 April 2019, when HMRC benchmark subsistence scale rates are claimed, employers will only have to ensure that employees evidence that they are on a qualifying business journey, but no receipted evidence of actual expenditure on food/drink purchased during that journey is required. It is effectively a return to an un-receipted allowance that can be paid tax/NIC free. However HMRC have recently confirmed that this simplification of the rules will not apply to employers who either operate using bespoke subsistence rates previously agreed with HMRC, or industry agreed rates, and they will have to continue to carry out random sample checks of receipts obtained by their employees. We have clarified this exception in more detail later in this update.
The current HMRC benchmark subsistence rates are: £5 for qualifying travel of 5 hours or more, £10 for qualifying travel of 10 hours or more; and £25 for qualifying travel of 15 hours or more; and, where the travel is ongoing after 8pm. If these rates are exceeded, tax/NIC is due on the excess.
There are also HMRC benchmark subsistence rates for overseas subsistence and accommodation that can be used for employees travelling overseas on qualifying business journeys, which are covered by this legislation.
Employers operating the HMRC Benchmark rates and/or HMRC’s overseas benchmark rates from the 6th April 2019 onwards must still ensure that there is sufficient evidence held to verify that the journey is a qualifying business journey, and there must be strong procedures in place to monitor this. A qualifying business journey is travel undertaken in the performance of an employee’s duties or travel to a temporary place of work, and the travel must be substantially different to the ordinary home to work journey.
This change in HMRC approach is good news for businesses, as the burden of administration will be significantly reduced by using HMRC’s benchmark subsistence rates, and it will make benchmark rates a more attractive option instead of employees claiming reimbursements of actual cost of subsistence.
Recent clarification on exception for bespoke/industry agreed subsistence rates.
As mentioned above, in their Employer Bulletin 75, published in December 2018, HMRC clarified, that the change in legislation will not apply to those employers that use bespoke scale rate payments or industry-wide scale rates.
This means that, for example employers who operate the long established Road Haulage Association subsistence rates, which are agreed nationally with HMRC, can only be made without deduction of PAYE tax/NIC if there are procedures in place to check receipts as evidence of expenditure on subsistence being incurred during the qualifying business journey.
Other bespoke subsistence rates that have been agreed with HMRC will also continue to operate under the current “old” rules, and procedures for checking receipts as evidence of expenditure must be operated for the rates to be paid without deduction of PAYE tax/NIC.
This inconsistency of approach does not help employers, and disadvantages companies in the road haulage industry, as they still have the onerous task of evidencing that subsistence expenditure has been incurred before paying industry wide agreed subsistence rates without deduction of PAYE tax/NIC.
If you would like to find out more about benchmark scale rates, how they can work for your business, and the processes that need to be in place to meet HMRC’s requirement and expectations, please contact the Smith Cooper Employment Tax Team.