Subsistence Allowances UK: A Guide to Employee Expenses

For employers, understanding subsistence rules is essential for managing employee expenses. These rules govern the costs employees can claim when traveling for work, ensuring fair reimbursement while maintaining compliance with tax regulations set by HMRC.

Travel and Subsistence Expenses

Employees often incur various costs when traveling for work, which can include:

• Accommodation (e.g., hotel stays)
• Meals and refreshments
• Transport (e.g., mileage for personal vehicle use, public transport fares, taxi fares)
• Incidental expenses (e.g., parking, tolls, congestion charges)

Employers may reimburse these expenses. However, the tax implications depend significantly on whether the travel is to a permanent workplace or a temporary workplace.

Permanent vs. Temporary Workplace: The Key Distinction

Permanent Workplace

A permanent workplace is a location where an employee regularly performs their duties. Travel to a permanent workplace is considered ordinary commuting and is not tax-deductible. If an employee attends a location regularly, it is generally deemed permanent.

It's important to note that employees can have multiple permanent workplaces at the same time.

Furthermore, a geographical area rather than a single fixed location may be treated as a permanent workplace, which means that even if an employee travels around, it doesn't necessarily mean they qualify for subsistence:

• If an employee is required to travel to different sites as part of their normal work duties within a defined region, their whole geographical region might be considered their permanent workplace. In such cases, day-to-day travel within this region is generally not deductible for tax purposes.
• However, if travel to a specific site within that region is genuinely irregular or for an exceptional, temporary purpose, it may still be classed as temporary, potentially allowing for tax relief.

Temporary Workplace

A temporary workplace is a location where an employee works for a limited duration or for a temporary purpose. Travel to a temporary workplace is tax-deductible.

Key considerations for a temporary workplace:

• If an employee works at a location for less than 24 months, it may generally be considered temporary. This is often referred to as the "24-month rule".
• If the purpose of attending the workplace is explicitly short-term (e.g., a specific project with a defined end date, training, a one-off meeting), it typically qualifies as temporary.

While a temporary workplace generally follows the 24-month rule, there are situations where even a short-term assignment might not qualify:

• If an employee is expected to work at a location for over 24 months from the outset, it is considered permanent from the start, even if they have only worked there for a few months.
• If the employee spends over 40% of their total working time at a particular location, it could be considered permanent, even if the assignment is for less than 24 months. This is often referred to as the "40% rule".

Tax Implications of Workplace Status

• Travel to a permanent workplace is not deductible for tax purposes.
• Travel to a temporary workplace is deductible, meaning employers can reimburse these expenses tax-free, and employees can claim tax relief if not reimbursed.

Employers must ensure strict compliance with HMRC guidelines when reimbursing expenses to avoid unexpected tax liabilities for both the company and the employee.

Claimable Expenses for Business Travel

Employees can claim various expenses when traveling for work, provided they meet HMRC’s qualifying conditions related to travel to a temporary workplace.

Accommodation & Meals

• Hotel stays and other overnight accommodation costs for genuine business purposes.
• Meal allowances for food and drink, based on time away from the workplace and if the employee is required to be away from their normal place of work for a significant period.
• Incidental expenses incurred during an overnight stay, such as laundry, phone calls, or newspapers.

Mileage & Transport

• Public transport fares (train, bus, tram, taxi) when traveling for business.
• Mileage allowance for personal vehicle use for business journeys (e.g., the HMRC approved rate is currently 45p per mile for the first 10,000 miles in a tax year, then 25p per mile).
• Associated costs like parking fees, road tolls, and congestion charges.

Incidental Overnight Expenses (No Receipts Required)

Employees staying overnight for business can claim certain small incidental expenses without providing receipts. HMRC allows fixed-rate claims for personal costs incurred during an overnight stay. These include:

• Newspapers or magazines
• Laundry costs
• Personal phone calls home
• Other minor personal expenses

The current tax-free limits for these incidental overnight expenses are:

• £5 per night for UK stays.
• £10 per night for international stays.

Employers can reimburse these amounts without requiring receipts, provided they adhere strictly to HMRC’s limits.

Subsistence Rates Without Receipts (Benchmark Scale Rates)

HMRC also allows employers to use flat-rate meal claims, known as "benchmark scale rates," without requiring receipts from employees for meals. This applies to employees on business travel who are away from their normal workplace.

• Employees can claim meal costs using approved HMRC subsistence rates instead of actual receipts.
• These rates vary depending on the length of time spent away from the workplace (e.g., 5-hour, 10-hour, or overnight rates).
• The employer must use approved benchmark rates set by HMRC, or their own approved scale rates, rather than an arbitrary allowance, to ensure they remain tax-free.

Examples of Claimable Expenses

Example 1: Overnight Stay in the UK

An employee travels for work (to a temporary workplace) and stays overnight in a hotel. They can claim:

• Hotel cost (if booked by the employer or reimbursed).
• Meal allowance (up to HMRC-approved benchmark rates, depending on time away).
• Incidental expenses (up to £5 per night without receipts).

Example 2: International Business Trip

An employee travels abroad for a conference (temporary workplace). They can claim:

• Flight costs.
• Hotel accommodation.
• Daily meal allowance (up to HMRC-approved international benchmark rates).
• Incidental expenses (up to £10 per night without receipts).

Example 3: Mileage Claim

An employee drives their personal car for a business trip (to a temporary workplace). They can claim:

• Mileage allowance (e.g., 45p per mile for the first 10,000 miles in the tax year).
• Parking fees.
• Toll charges.

Example 4: Late Night Taxi

If an employee has to work unusually late and public transport has ceased for the night, a taxi fare home would generally be considered an allowable, tax-free claim. However, paying for an employee to use a taxi to and from work each day because they don't drive is **not** an allowable claim, as this is ordinary commuting.

In general, an allowance is available only where an employee has to work outside their normal remit and incur additional costs as a direct result of their business duties. For instance, if they have to travel to a one-off location at the other end of the country, it's clearly allowed. If they merely nip to the pub down the road on lunch, it's not allowed.

Common Mistakes to Avoid

Mistake 1: Claiming for Ordinary Commuting

Employees cannot claim travel expenses for commuting to a permanent workplace, even if the journey is lengthy. Only travel to temporary workplaces is eligible for tax relief.

Mistake 2: Exceeding HMRC Limits

Employers must ensure that subsistence allowances and other expense reimbursements do not exceed HMRC’s approved tax-free rates. Any payments above these limits may be considered a taxable benefit in kind for the employee.

Mistake 3: Lack of Documentation

While some specific expenses (e.g., incidental overnight costs up to the limit) do not require receipts, most claims must be supported by proper documentation (receipts, invoices, mileage logs) for audit purposes.

Mistake 4: Misclassifying Workplaces

Incorrectly treating a permanent workplace as temporary, or vice-versa, can lead to significant tax compliance issues for both the employer and the employee, potentially resulting in underpaid tax and penalties.

Mistake 5: Misunderstanding the ‘Geographical Workplace’ Rule

As detailed above, certain jobs involve regular travel within a defined area, making those journeys generally ineligible for subsistence claims, as the entire area is considered the permanent workplace.

**Note:** This information is a general guide to UK subsistence allowance rules and tax implications. Tax regulations and HMRC guidance can be complex and subject to change. Always seek professional accounting or tax advice tailored to your specific circumstances to ensure full compliance.