HMRC internal manual

Employment Income Manual

EIM05200 - Employment income: scale rate expenses payments: general

Section 62 ITEPA 2003

The guidance on this page applies for the tax years up to and including 2015 to 2016. For tax years 2016 to 2017 onwards, the benchmark scale rates have been revised and are now included within the exemption for amounts which would otherwise be deductible. See EIM30200 onwards.

Many employers pay or reimburse, at scale rates, expenses incurred by employees in performing their duties. Subsistence payments are a common example.

A scale rate payment which is calculated to do no more than reimburse the expenditure incurred by employees on allowable expenses will not be regarded as a round sum allowance. The employer can be authorised to make such payments without deduction of tax under PAYE. See Booklet 490, Section 9.6 onwards.

Between 6 April 2009 and 5 April 2016, employers could opt to use the advisory benchmark scale rates for subsistence expenses set by HMRC by ticking the appropriate box on form P11Dx or by making a request in writing. Where an employer applied to use the benchmark scale rates as part of a new or updated dispensation request, they did not have to undertake a sampling exercise.

From 6 April 2016, employers who wish to pay or reimburse employee subsistence expenses using the benchmark scale rates must have a checking system in place to ensure that they only pay or reimburse employee expenses on qualifying occasions where the employee has, in fact, incurred an expense.

It’s important that scale rate payments are only applied to appropriate items. In general, scale rates are only appropriate for expenses which are widely incurred, in broadly similar amounts, but for which it is often difficult to get receipts. For example subsistence, or the expenses of cleaning uniforms or protective clothing. Scale rates should be set at a fairly modest level which, taking one day with another, will be enough to cover the relevant expenses. They should not be pitched at a level to cover the highest amount that an employee might spend.

The employer should have procedures in place to ensure that:

  • scale rate payments are only paid when the employee has incurred an allowable expense - a scale rate payment which is paid irrespective of whether the employee has incurred an allowable expense is simply a payment of earnings within section 62 ITEPA 2003
  • scale rate payments are not paid to employees whose circumstances have changed and have ceased to qualify - this may be, for example, because the workplace is no longer temporary by reference to sections 338 and 339 ITEPA 2003 (see EIM32100 onwards) or because their duties have changed and they no longer travel in the performance of the duties or to a temporary workplace

Mileage allowance payments made to employees who use their own vehicle or bicycle for business travel should be dealt with under the approved mileage allowance payments scheme (see EIM31200 onwards).

See also:

Non-allowable incidental overnight expenses

Scale rate expenses payments, as described above, relate to items for which employees are entitled to tax relief under the rules in, principally, sections 336 to 338 ITEPA 2003 (see EIM31800 onwards). However, employees who have to stay away from home overnight often incur incidental expenses for which no relief is permitted under those rules. For example, they may buy newspapers, pay for laundry or phone home. Those expenses are not incurred necessarily in performing the duties of the employment, and so do not qualify for tax relief. Employers may nevertheless reimburse such incidental expenses, free of tax and NICs, within the limits set out at EIM02710 onwards. Those reimbursements can be made in addition to any agreed scale rate payment for allowable expenses.