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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Exemption for amounts which would otherwise be deductible: Checking systems - Models

Where an employer applies a checking system that fits one of the following models HMRC will accept that the requirements of the exemption are met.

Checking systems may vary depending on the size of the employer’s workforce and the proportion of that workforce who travel regularly in the performance of their duties. See EIM30270. Employers will need to be able to demonstrate that the system that they use checks a representative sample of their employees’ travel claims sufficiently frequently to allow them certainty that their processes are working, that they only pay claims on qualifying occasions, and that the amount that they pay reasonably reflects the costs that employees are actually incurring.

These models are not prescriptive and employers may choose to put a different system in place. Alternative systems which demonstrate that payments are only made to employees which would be eligible for a deduction, and that employees are actually incurring an expense will still meet the requirements of the exemption.

Model A – Large employer

Large employer with more than 1000 employees who regularly travel in the duties of their employment. Bespoke scale rate agreed with HMRC

Employer undertakes a random 10% check of all employees’ expenses claims over a one month period on a 6 monthly basis.  Claims are authorised and vouched by reference to employee diaries, work schedules and time sheets to demonstrate that employees were travelling in the performance of their duties on any days that payments were made. Employer also checks employee’s receipts to confirm that employees had in fact incurred costs and that the circumstances that applied when the bespoke scale rate was agreed have not significantly changed since the rate was agreed.   Employees should not be given prior notice before or during the period that they will be the subject of review.

The employer will have to be able to satisfy HMRC that their 10% sample really is a random one - for example, every 10th name from an alphabetical list of the employees concerned. HMRC will accept the evidence produced by such an exercise as being random for the purposes of confirming that employees meet the qualifying conditions for payment of the scale rate.

If the checks indicate that the circumstances that applied when the bespoke scale rate was agreed have changed such that the approval notice is no longer valid, the employer should contact HMRC to consider revising the rate.

Where employees incur costs in excess of the agreed rate they are not prevented from making a claim to HMRC for relief on the excess.  This will be subject to the employee being able to provide evidence in support of their claim.

Model B – Large employer

Large employer with less than 1000 employees who travel regularly in the duties of their employment. Employer pays benchmark rates

Employer checks a random 10% of all claims for one month in each 6 month period. Claims to be independently checked and authorised, and vouched by reference to employee diaries, work schedules and time sheets to confirm that employees were travelling in the performance of their duties on the date of the claim, Employer also checks employee’s receipts to demonstrate that employees had in fact incurred costs whilst travelling. Employees should be aware that any payments or reimbursements of expenses will be subject to review and that they will need to retain receipts etc.

The employer will have to be able to satisfy HMRC that their 10% sample really is a random one - for example, every 10th claim received.  HMRC will accept the evidence produced by such an exercise as being random for the purposes of confirming that employees meet the qualifying conditions for payment of the scale rate.

Where employees incur costs in excess of the benchmark rate they are not prevented from making a claim to HMRC for relief on the excess.  This will be subject to the employee being able to provide evidence in support of their claim.

Model C – Small employer

Small employer with less than 100 employees who regularly travel in the duties of their employment. Employer pays benchmark rates

Employer checks a random 10% of all claims.  Checks to be independently checked and authorised, and vouched by reference to employee diaries, work schedules and time sheets to confirm that employees were travelling in the performance of their duties on the date of the claim, and receipts to demonstrate that employees had in fact incurred costs whilst travelling. Employees should be aware that they might be subject to review at any time, and not be given notice that any particular claim will be subject to review.

The employer will have to be able to satisfy HMRC that their 10% sample really is a random one - for example, every 10th claim received.  HMRC will accept the evidence produced by such an exercise as being random for the purposes of confirming that employees meet the qualifying conditions for payment of the scale rate.

Employees required to retain receipts for a period of twelve months from the date of expenditure.

Model D – One man company

Single employee of a one man company working at a series of temporary workplaces. Claiming benchmark scale rates.

Employee maintains a diary and time sheet to confirm occasions when travelling in the performance of their duties and retains receipts in respect of subsistence costs.  An independent third party performs regular monthly checks on a sample of the employees’ records to confirm that the relevant conditions for the exemption were met on each occasion. Checks are performed at random and the employee does not know in advance which journeys will be checked.