If you run a small business and you have employees who are working away from home - occasionally or regularly - it’s essential to understand HMRC’s rules on paying the expenses they incur for meals, overnight accommodation or other forms of subsistence.
These expenses fall under the general category of ‘working away from home allowances’ - provided they meet HMRC’s qualifying criteria. If they do, your employees would not have to pay income tax or National Insurance contributions on the payments they receive. You would also be able to claim the expenses you pay them as a deductible business allowance against your Corporation Tax bill.
This brief guide sets out the key requirements for paying and reporting a working away from home allowance. However, the rules and their interpretation by HMRC can be complex, so it may be useful to take professional advice if you are uncertain about a claim.
There are separate HMRC rules governing the payment of travelling expenses when employees are working away from home. You will find information on these rules in an article ‘UK business mileage allowance and mileage allowance relief’.
To qualify under HMRC’s rules, expenditure on overnight accommodation and subsistence needs to be incurred “wholly, exclusively and necessarily in the performance of the duties of the employment.”
In practical terms, that means the expenses must be incurred primarily on two types of scenario:
Visits an employee has to make in the performance of the duties of the employment.
Visits to a temporary workplace that an employee has to attend to carry out the duties of the employment.
Expenses on journeys do not qualify if they represent ordinary commuting to an employee’s main workplace or private travel.
Expenses incurred on a visit that meet HMRC’s criteria might include:
Visits to a place where you can only carry out the work if you make the trip. An employed electrician travelling to a building site, for example, or a surveyor visiting premises to carry out an inspection would qualify.
Visits to meet a customer or supplier for a business meeting.
Visits to a conference, exhibition or training session related to an employee’s work.
Visits to other sites within your company for business purposes. If you are based in London, for example, and an employee travels to your Cambridge office for a meeting, expenses incurred on that journey qualify.
There is a further category that applies if an employee is working away from home for extended periods at a location that is not their normal workplace.
For example, an employee could be working on a customer’s site for several weeks or might be posted temporarily to another company location for a short or long period. In those situations, the employee will incur expenses for meals and accommodation.
However, qualification for allowable business expenses in that scenario can prove difficult to assess. In some cases, disputes over working from home allowances have led to tribunal hearings or court cases where HMRC’s tests have been interpreted very strictly. There are examples of complex situations and HMRC decisions in an article on the ICAS website – ‘Working away from home, what to watch for when claiming tax relief for travel and accommodation.’
Provided the visit qualifies, you can reimburse employees for meals, hotel accommodation and some incidental expenses incurred when they are working away from home and their regular workplace.
To help you calculate working away from home allowances, HMRC has published ‘benchmark scale rates’ that set out recommended figures for different types of expense. Hotel charges are reimbursed at cost; the benchmark scale rates apply to the costs of meals.
Description Amount (up to)
Breakfast rate £5
One meal (5 hour) rate £5
Two meal (10 hour) rate £10
Late evening meal rate £15
The rate may be paid when an employee leaves home earlier than usual and before 6am and incurs a cost on breakfast taken away from home after the qualifying journey has started. If an employee usually leaves before 6am the breakfast rate does not apply.
The rate may be paid where the employee has to work later than usual, finishes work after 8pm having worked their normal day and has to buy a meal before the qualifying journey ends which they would usually have at home. The breakfast and late evening meal rates are for use in exceptional circumstances only and are not intended for employees with regular early or late work patterns.
The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 5 hours and has incurred the cost of a meal.
The rate may be paid where the employee has been undertaking qualifying travel for a period of at least 10 hours and has incurred the cost of a meal or meals.
Before reimbursing employees for the cost of meals, make sure that the costs are not included in the hotel bill that you have reimbursed in full.
If you want to use the benchmark scale rates, you must apply to HMRC for an exemption. As part of the agreement, you have to indicate that you have adequate management processes in place to ensure the rates only apply to qualifying allowances.
Reimbursing incidental expenses such as cost of newspapers, phone calls home or laundry is open to interpretation by HMRC and you would have to prove that they are incurred “wholly, exclusively and necessarily in the performance of the duties of the employment.”
For any allowable incidental expenses, HMRC sets limits of £5 per night for overnight stays in the UK and £10 per night for overnight stays outside the UK. Before reimbursing employees for the cost of allowable incidental expenses, make sure that the costs are not included in the hotel bill that you have reimbursed in full.
Provided you reimburse employees for qualifying expenses at HMRC’s benchmark scale rates, your employees will not incur income tax or National Insurance charges on the allowances they receive. Similarly, any expenses you reimburse qualify as allowable business expenses and are deductible from Corporation Tax charges.
However, if you reimburse employees at a rate that is higher than the benchmark scale rates, there will be tax implications.
If you reimburse at a higher rate, the employee will pay income tax and National Insurance contributions on the whole amount of the payment. For example, if you reimburse £20 for the late evening meal, rather than HMRC’s £15 rate, the employee will incur charges of £20.
If you have an exemption from HMRC and pay benchmark scale rates, you do not have to report the expenditure to HMRC.
However, it’s important to maintain accurate records of all reimbursements together with the employees’ receipts for their claim. You may need these in the event of a query or dispute with HMRC.
This is a brief outline of the rules on paying employees a working away from home allowance. If you would like professional advice on any aspect of these rules, or would like confirmation that you are complying with HMRC’s rules, our team of experienced tax accountants will be glad to help.