Crumbs from the Table – HMRC’s New Rules on Employees’ Expenses

Crumbs from the Table – HMRC’s New Rules on Employees’ Expenses
Expense allowances seem to be a hot topic at the moment. The press is having one of its occasional fits of moral outrage about the shameless freeloading of our parliamentary masters, and now HMRC have decided to get in on the act by publishing “benchmark” rates for employees’ subsistence expenses – see “Revenue and Customs Brief 24/09”, published on 2 April 2009.


If an employee has to travel in the course of their work, or to stay away from home overnight, he is entitled to claim the cost of food and drink consumed during his travels.


Until now, the choice has been between reimbursing the actual amount spent by the employee, supported by receipts, and agreeing a round sum allowance with the local tax office. In either case, it is necessary to apply for a “dispensation”, which is a note from HMRC confirming they agree to the expenses policy in use. 


Without a dispensation, the employer has to go through the rigmarole of reporting all the expenses payments on the employee’s form P11D at the end of the tax year, and the employee then has to make his own claim to deduct those same expenses. A dispensation short-circuits this process, and reimbursements of expenses covered by a dispensation need not be reported to HMRC.


For most employers, the round-sum allowance works better than a claim for the actual amount spent, as it involves less checking and is generally perceived as fairer, though the “actual expenditure” method is popular with some employees. When I worked for one of the “Big Four” firms, I once had a phone call from the expenses department questioning a bill for dinner in a hotel where I had stayed the night. I had just completed a three-day marathon of presentations to clients about that year’s Budget, and on the last night I had staggered back to the hotel exhausted, only to find they were having a “gourmet night”. I reckoned my employers owed me a decent dinner after all my efforts, so I signed up for the extra cost of the “gourmet” menu – and if you’re having Crepes Suzette flamed at your table, you need something better than your average plonk to wash them down. I explained this to the expenses guy who had phoned me to query my claim, and he immediately backed down, explaining that the size of the bill had led him to suppose I must have been entertaining at least one guest at my table. Reassured that the cost was due to my gluttony rather than my hospitality, he approved the claim.


Agreeing rates for round-sum allowances with HMRC has up to now been fraught with difficulty. I can only assume that the last HMRC official with whom I tried to negotiate a £4 lunch allowance is either anorexic or assumed I had some intricate tax avoidance scheme in mind, as she would only agree on the basis that “sampling” of expenses was carried out in the future, presumably to ensure that the change from the £4 was not being squirreled away in an offshore account.


On 2 April, HMRC published their “benchmark” rates for subsistence payments. Employers who pay these rates must still get a dispensation for them, but the official they have to deal with will have been instructed not to quibble if they stick to the published rates.

The rates are:


• The “breakfast rate” of £5. This can be paid to an employee who has to make an unusually early start (defined as before 6am) to get to wherever he is going. Note that it does not apply to one who regularly has to leave home at that hour, such as a shift worker.
• The “one meal rate”, again of £5. This is payable if the employee is away from his normal place of work for over 5 hours.
• The “two meal rate” of (you’ve guessed it) £10. This applies when the employee is away for over ten hours
• The “late evening meal rate” of £15, payable to an employee who finishes work unusually late (after 8pm) and buys a meal he would normally have eaten at home. Once again, if you regularly work late, this allowance does not apply.

You can have the “late evening meal rate” as well as the “one meal rate” or the “two meal rate” if the circumstances justify it. At the risk of stating the obvious, the “one meal rate” and the “two meal rate” are mutually exclusive.


£15 would not have made much of a dent in the cost of my gourmet dinner, but on the whole the idea of round sum allowances is one to be welcomed – and if you employ a team of gourmets, you can always reimburse the actual cost supported by receipts if you prefer.


Note that to qualify for any of these allowances, the employee has to have actually spent some money on food, though the employer is not required to verify that he spent the whole £5 or whatever rate applies.


Now the bad news...

With this good news comes some bad. For many years, there has been an allowance for employees staying away from home on business called the “friends and family allowance”. This applied if the employee stayed the night with a friend or a family member, and was a round sum allowance which required no evidence of expenditure actually incurred. For as long as I can remember (certainly since the early 1980s) it was fixed at £25, and HMRC could hardly refuse to include it in an employer’s dispensation because they were allowed to claim it themselves.


Recently, things changed in HMRC and they could only claim actual expenditure up to a maximum of £25, and they had to produce receipts. Until 2 April, however, other employers (if they knew about it) could get a dispensation for a round sum “friends and family allowance” of £25.


The announcement about “benchmark” allowances also withdraws the “friends and family” allowance, “because it is not linked to any specific underlying expense”. The good news is that if you already have it in your dispensation, you can continue to pay it until your dispensation comes up for review. If you have such a dispensation, therefore, you may decide that it is best not to apply to change it to the new scale rates for subsistence, as part of the process is likely to involve losing the overnight allowance for “friends and family”.


There is of course one exception to the withdrawal of this nice little earner. Can you guess? That’s right, £25 happens to be the exact amount of the “subsistence allowance” that MPs can claim (without producing receipts) if they spend a night away from home!


James Bailey