Employment income: scale rate expenses: benchmark rates: questions and answers
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.
The following questions and answers were originally published in Revenue and Customs Bulletin 24/09 that has now been deleted. They were addressed to the employer. The answer to the first question was not intended to suggest that having notified HMRC of their intention to use the benchmark rates, employers could do so without agreement from HMRC. From April 2016, you need to consider the guidance at EIM30200 onwards.
Questions and answers
What you have to do if you want to pay benchmark scale rates to your employees?
You should apply to HMRC for a dispensation. You need to complete a form P11DX, which is the form used by employers to apply for a dispensation, and submit it to HMRC. On the form you need to indicate with a tick against the appropriate statement under ‘Travel and Subsistence’ that you intend using HMRC’s benchmark scale rates to reimburse your employees’ subsistence payments. By ticking this box you would be merely notifying HMRC that you intend paying HMRC’s benchmark scale rates for day subsistence and that you have adequate management processes in place to ensure that payments are only made where all the qualifying conditions are met. If you want to apply to include other items of allowable expenditure in a dispensation for example fees and subscriptions, laundry, telephone charges, etc, you need to tick the appropriate boxes and supply the requested information on the form.
When can you pay a scale rate?
Scale rate payments may be made to employees who necessarily travel in the performance of their duties or have to travel to a temporary place of work. The statutory rules are in sections 336 to 342 ITEPA 2003. Where the employer agrees a scale rate in a dispensation, the scale rate may also be taken into account for NIC purposes.
Guidance on how the employment income travel expense rules work can be found in HMRC’s Booklet 490 ‘Employee travel - A tax and NICs guide for employers’.
When must you not pay tax and NICs free scale rates?
Tax and NICs free scale rates must not be paid where the employee is not travelling on a qualifying business journey. For example, when on a journey that involves ordinary commuting (or similar to ordinary commuting), or private travel.
Additionally, no tax and NICs free payment should be made if an employee does not incur an expense on meals after leaving home or his normal place of work, even if the journey was a qualifying business journey. This means that employees who do not buy a meal or who take a packed lunch from home are not entitled to a tax and NICs free payment.
Do employers have to use the benchmark scale rates?
Employers do not have to use the benchmark rates. They can reimburse their employees’ actual expenditure or apply to HMRC to agree a scale rate appropriate for their business needs in a dispensation. However, where an employer wants to use a higher scale rate, it will have to undertake a sampling exercise to show the higher rates are in line with what its employees’ typically spend on subsistence and agree the rate with HMRC.
What records would an employer need to keep?
An employer will need to keep sufficient records to be able to demonstrate that the employee was entitled to the payment. An employer also needs to be able to demonstrate that routine checks are undertaken to ensure that the travel expenses rules are being followed.
What happens to existing dispensations?
Existing dispensations will remain in force until they come up for review in accordance with HMRC’s rolling review programme, usually on a 5-year cycle. When the existing dispensation comes up for review the employer can choose to switch to benchmark scale rates or apply to continue to use a tailored rate. Where a new dispensation is requested the employer will have to go through the process of undertaking a statistically valid sampling exercise.
Uprating benchmark scale rates
HMRC will review the rates annually and consider revising them when there has been a change in the scale rate of plus or minus 10% based on the Consumer Price Index from when it was last revised.
How has HMRC arrived at the benchmark scale rates in question?
HMRC reviewed the scale rates agreed for a number of employers, both large and small, and based the rates on the most commonly agreed rates.
Why not have higher benchmark rates for London or other locations where prices are more expensive?
The benchmark rates are linked to what employers typically reimburse their employees and it would not be possible to break this down between different locations. Personal expenditure on subsistence varies significantly between employees even when working at the same location.
If an employer typically reimburses more than the benchmark rates then it will remain open to them to agree a higher rate with HMRC or to reimburse actual expenditure.