Policy paper

Abolition of receipt checking for benchmark scale rates and changes to overseas scale rates

Published 6 July 2018

Who is likely to be affected

Employers who use benchmark scale rates (BSR) or overseas scale rates (OSR) when paying or reimbursing employees’ qualifying expenses incurred when travelling for work.

General description of the measure

This measure removes the requirement for employers to check evidence, such as receipts, of the amounts spent when using BSR to pay or reimburse their employees’ qualifying subsistence expenses when travelling for work. The measure also places the concessionary accommodation and subsistence OSR onto a statutory basis and, similarly, there will be no requirement for employers to check evidence of amounts spent. Employers will only be asked to ensure that employees are undertaking qualifying business travel for both BSR and OSR.

Policy objective

Removing the requirement to operate a receipt checking regime for small set amounts under BSR will reduce burdens on employers who use BSR. Placing the OSR on a statutory basis will provide greater certainty for employers.

Background to the measure

This measure was announced at Autumn Budget 2017 following a call for evidence on the taxation of employee expenses in summer 2017.

BSR are the maximum amounts an employer can pay or reimburse in respect of deductible subsistence expenses, free of tax and National Insurance contributions, without reporting the payments to HMRC under this system. An employer may choose to pay less. If a higher amount is paid, the excess is subject to tax and National Insurance contributions. Alternatively, employers may pay or reimburse employees’ actual expenses or use bespoke scale rates, agreed separately with HMRC.

BSR cover modest meal allowances with which employers can reimburse their employees for food and drink costs, as follows:

Travel time	Description of meal allowance	Maximum total	Maximum total if travel is still ongoing at 8pm
5 hours or more	Up to £5	£5	£15
10 hours or more	Up to £10	£10	£20
15 hours or more and ongoing at 8pm	Up to £25	£25	£25

OSR are amounts published in HMRC guidance that employers can pay or reimburse their employees who travel abroad on business without deducting tax or National Insurance contributions or reporting the payment to HMRC.

The amounts cover accommodation and subsistence costs. They are dependent on the country and city the employee visits along with the length of time of the visit. Many employers find the OSR a useful and simple way to reimburse employees for the costs that they incur when travelling abroad for work.

Draft legislation was published for consultation on 6 July 2018.

Detailed proposal

Operative date

This measure will have effect on and after 6 April 2019.

Current law

For BSR, the current legislation is contained in section 289A of the Income Tax (Earnings & Pensions) Act 2003 (ITEPA) and the amounts are listed in regulations made under the power in section 289A(6)(a): SI 2015/1948 Income Tax (Approved Expenses) Regulations 2015. For National Insurance contributions the current legislation is contained at paragraph 8A of Part 8 to Schedule 3 of the Social Security (Contributions) Regulations 2001).

Section 289A ITEPA allows employers to pay or reimburse expenses, under BSR, free from tax providing that employers have a system in place to check that employees are incurring amounts in respect of deductible expenses. This means that if the employee had paid the amount themselves with no reimbursement they would have been able to claim a tax deduction under sections 336 to 338 ITEPA for all of the amount.

Paragraph 8A of Part 8 to Schedule 3 of the Social Security (Contributions) Regulations 2001) which allows for any amount which is exempted from income tax under section 289A ITEPA to be disregarded when calculating earnings for Class 1 National Insurance contributions liability purposes.

OSR are not currently in legislation. The rules and rates are set out in HMRC guidance and published on gov.uk. Under these existing rules, employers do not need to report payments under BSR or OSR to HMRC. This will not change.

Proposed revisions

Legislation will be introduced in Finance Bill 2018-19 to amend section 289A ITEPA by inserting a number of new subsections. This will provide that expenses paid or reimbursed using BSR will not require employers to operate a system for checking employees’ expenditure in order to make the payments free from tax. Instead, legislation will only require employers to ensure that employees are undertaking qualifying travel.

This will also bring OSR into legislation. Similar to BSR, there will be no requirement for employers to operate a system for checking employees’ expenditure but they will need to ensure the employees are undertaking qualifying travel.

This measure does not change the monetary rates for BSR or OSR.

Regulations will be laid at a further date after Royal Assent to Finance Bill 2018-19 to set the monetary rates for OSR. This will be the same as the existing rates.

Summary of impacts

Exchequer impact (£m) - abolishing receipt checking for benchmark scale rates

2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
-	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Exchequer impact (£m) - legislating overseas scale rates

2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
-	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure is not expected to have any impact on individuals or households as it only affects employers. Employers may continue to ask their employees to provide receipts.

There is no impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be any equalities impacts for those in groups with protected characteristics.

Impact on business including civil society organisations

This measure will affect all employers who use BSR to pay or reimburse employees subsistence expenses. This measure is expected to create an ongoing administrative saving for businesses. One-off costs include familiarisation with the changes. Ongoing savings include the removal of the need for employers to check evidence of the amounts of expenses incurred by employees (for example, receipts) when paying or reimbursing their employees under BSR. Bringing the OSR into legislation is expected to have a negligible impact on employers as it will formalise existing concessionary processes used by employers.

Operational impact (£m) (HMRC or other)

It is anticipated that there will be negligible operational impacts for HMRC apart from changes to HMRC guidance.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact the Employment Income Team employmentincome.policy@hmrc.gsi.gov.uk.