Changes to the rules regarding subsistence allowances
From April 2016 P11D dispensation agreements will be abolished and replaced with new rules based on statutory exemptions for business expenses paid/reimbursed that have been necessarily incurred in the performance of the duties of the employment. As a result of this change, where employers wish to pay subsistence expenses using so-called ‘scale rate’ payments (sometimes referred to as round sum allowances) rather than actual receipted costs, specific action will be required to ensure continued compliance with the HMRC rules.
Scale rate payments can take two forms
- Benchmark rate
In such cases, employers may utilise the revised benchmark daily subsistence rates, which have recently been published by HMRC to apply from April 2016, which increase incrementally depending on whether the travel time away from the normal place of employment is 5 hours (where a £5 maximum meal allowance may be paid), 10 hours (£10 maximum) or 15 hours (£25 maximum) plus a supplementary rate of up to £10 in addition to the £5/£10 rate where the business journey lasts beyond 8pm. Where employers wish to apply these rates they should still have a checking system in place to ensure that the employee is attending a temporary workplace for the required period of time and is incurring an expense on food/drink after commencing the journey
- Bespoke rate
Alternatively, employers may wish to use their own bespoke rates instead of the benchmark rates. For some employers these will have been agreed previously with HMRC, in which case the employer will be required to apply for an Approval Notice from HMRC if they wish to continue using them from April 2016. Other employers may wish to update their bespoke rates in which case they must undertake a sampling exercise to obtain HMRC approval
The above changes may affect some local authority and other public sector employers. There will be no impact, however, where claims for subsistence (and other) expenses are conditional on the employee incurring actual costs and providing a receipt to demonstrate the fact. Many local authorities and other public bodies will, under the terms of their own policies, still require the employee to be absent for a specified period of time and may limit the level of receipted expenditure that is reimbursed. Such arrangements have typically been included in HMRC dispensation agreements. However, many of these agreements date back several years and the position will not have been reviewed for some time. Therefore, with the removal of the dispensation regime from April 2016, employers should take the opportunity to review their position to ensure that they meet HMRC requirements.
We are helping a number of clients to review and update their current policies and procedures to ensure that they are compliant with HMRC’s requirements and that subsistence and other expenses can be treated as non-taxable (and non-NICable) under the new statutory exemption. If you would like assistance with reviewing your position or have any general queries about the rules regarding subsistence and other expenses, please do let us know.