Traveling for business is exciting for many reasons but at the same time, employees will incur various expenses such as food, accommodation, and transportation. Keeping track of them and having an overview of them afterward, can be tedious and time-consuming.
Employees in the UK can claim reimbursement for business-related expenses under the “subsistence allowance”, as defined by HMRC (His Majesty’s Revenue and Customs). Understanding these distinct regulations is crucial in determining which purchases qualify for tax relief, identifying those eligible for a subsistence allowance, and grasping the associated guidelines.
This blog will explain what’s included in the subsistence allowance and how to claim it. Furthermore, we’ll introduce the most effective solution for business subsistence allowance management.
What is a Subsistence Allowance?
A subsistence allowance, also known as meal allowance or per diems, is a certain amount of money granted to employees to cover their business travel expenses. These expenses typically include the goods and services necessary for an employee’s daily life fulfilling their responsibilities away from the office.
For example, a subsistence allowance might be given to employees who are required to travel for work, covering expenses such as accommodation, meals, and incidental costs. Expenses of this nature can be covered by a subsistence allowance. This information is valuable because by categorizing these transactions as business expenses, you become eligible for tax relief, ultimately saving money for your business.
You must deduct and pay taxes and social security in the case of certain spending categories. Any amount paid to an employee over their incurred expenditures is taxed. It is important to emphasize that the subsistence allowance is only relevant to work-related expenses and cannot be used for personal expenses during travel.
However, some forms of compensation, like scale rate payments, qualify as tax-free, since they function as reimbursement for business-related expenses.
How do Scale Rates Work?
According to HMRC recommendations, employers should use scale rate payments for expenses that are commonly and uniformly incurred, particularly in instances where obtaining receipts proves challenging. Subsistence serves as a notable example of such expenses.
HMRC has set up the standard rates which enable employees to claim back all taxes related to business spending. These predetermined rates apply in specific situations and enable businesses to give subsistence payments without constant authorization and approval.
The fixed rates can vary depending on the location of the business travel and the employee’s seniority. Additionally, the costs can be deducted as business expenses, meaning they are exempt from taxes and social security contributions. Additionally, there is the option for businesses to reclaim the paid VAT.
Are Subsistence Allowances Taxable?
HMRC has specific rules and regulations governing the subsistence allowance, and as previously mentioned, it’s exclusively applicable to business travel.
Moreover, the subsistence allowance can only be claimed under the following conditions:
- The travel must be undertaken as part of an employee’s duties or to a temporary work location, excluding substantially ordinary commuting.
- The employee must be absent from their regular workplace or home for a continuous period exceeding five hours or ten hours.
- The employee should have incurred meal expenses (for food and beverages) after starting the journey and retained proper evidence of their expenditures.
What are the Domestic HMRC Allowance Rates in 2024?
The HMRC, responsible for overseeing tax affairs, plays an important role in formulating guidelines and regulations governing subsistence allowance rates in the UK. Generally, employees seeking reimbursement are required to provide evidence of travel to and from temporary workplaces within the current or the preceding four tax years.
If your past or upcoming work-related trips align with the primary conditions outlined by HMRC, you have the opportunity to apply for a meal allowance based on scale rate payments.
Businesses can opt to reimburse corporate travel expenses, such as meals, using HMRC rates. While the government sets the standard allowance rates, companies can establish special rates based on their historical business travel costs. HMRC has the authority to approve these customized rates, particularly if the company can showcase exceptionally high annual travel expenses within its T&E management.
Nevertheless, for the majority of businesses, standard scale rate payments continue to be the preferred and practical choice. The meal allowance rates provided by HMRC, with the most recent update in January 2024, are as follows:
| Minimum Travel time | Maximum Allowance |
| 5h | £5 |
| 10h | £10 |
| 12h | £15 |
| 24h | £25 |
This shows that employees are required to conduct their work duties outside their regular workplace and spend at least 5 hours on travel to be eligible for a minimum meal allowance of £5. Companies can proactively calculate meal allowances by considering these rates and travel time to the destination.
Scale Rates Outside of the UK
When employees travel outside the UK, specific rates for accommodation and subsistence costs are set for individual countries and sometimes even specific cities. These scale rates, defined by the British government, apply to expenses accrued abroad.
Employees are compensated or reimbursed for subsistence based on these overseas scale rates, which are determined by the city in the country they visited, as designated by the British government.
The following outlines the types of subsistence for locations outside the UK:
- Allowance for over 5 hours
- Allowance for over 10 hours
- 24-hour rate
- Room rate
- Breakfast
- Lunch
- Dinner
- Other
- Drinks
- Hotel to office
- Total residual
Easily Manage Your Expenses
Managing subsistence payments can be challenging, requiring employees to track their business expenses and maintain a comprehensive overview consistently. Additionally, it’s crucial to prevent fraudulent and duplicate expense claims to safeguard your company’s financial health.
That’s why more and more companies are turning towards software for their subsistence allowance management. Assisting in the elimination of manual data entry, the software solution facilitates the efficient approval of expenses and invoices, avoids expense fraud, ensures faster reimbursements, and improves overall financial management. Increasing employee satisfaction and complying with HMRC regulations, saves time and minimizes the reliance on manual work.
An example of such software is Klippa SpendControl. The following video illustrates what a potential expense claim workflow could look like with Klippa’s automated expense management:
Klippa SpendControl includes the following features to help you manage your expenses more effectively:
- Precise data extraction facilitated by our leading OCR software
- Accessible on both mobile and web platforms with round-the-clock data availability
- Tailored approval management incorporating advanced business rules and authorization workflows
- Incorporated fraud detection for document fraud and duplicate detection through machine learning
- Support for multiple currencies, including an exchange currency feature
- Automated mileage registration seamlessly integrated with Google Maps
- Seamless integration with accounting and ERP software
Ready to optimize your subsistence allowances? Arrange a free demonstration to witness our solution in action, or contact our SpendControl experts for additional information.