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HMRC internal manual

National Insurance Manual

Class 1 NICs: Expenses and allowances: Scale rate payments

If the scale rate is calculated to do no more than reimburse the average expenditure and is not intended to provide a profit element, then it will not be regarded as a round sum allowance (see NIM06160). The employer can exclude any such payment from the calculation of earnings for the purposes of NICs by virtue of regulation 25 and paragraph 9 of Part 8 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (SI 2001 No 1004).

In general, scale rate payments are only appropriate for expenses that are widely incurred in broadly similar amounts but which can be difficult to get receipts for - for example, laundry costs or subsistence.

They should generally be set at a fairly modest level which, taking one day with another, will be sufficient to cover the relevant expenses. They should not be pitched at a level to cover the highest amount that an employee might spend.

Scale rate payments should only be paid on days 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 3(1) (a) of the Social Security Contributions and Benefits Act 1992.

For further guidance on scale rates, see NIM05680.

Position from 6 April 2016

From 6 April 2016, the position has changed and section 289A(6) of  ITEPA2003 introduced a statutory definition of an ‘approved scale rate’ in relation to the payment or reimbursement of expenses. An amount is calculated and paid or reimbursed in an approved way if done in accordance with:

  • regulations made by HMRC Commissioners, or
  • when approved by HMRC under section 289B ITEPA2003.


For an approval to be given under section 289B of ITEPA, an employer must apply to HMRC to pay or reimburse expenses at a set rate. If HMRC are satisfied that the proposed rate is a reasonable estimate of the amount of expenses actually incurred then HMRC may approve the scale rate and issue the employer with an ‘approval notice’ specifying the terms of the approval. If there is reason to do so an approval can be revoked, if needs be retrospectively, under section 289C ITEPA 2003, and any Class 1 NICs due from the date of revocation will need to be paid.

A  payment of expenses by a scale rate that is not approved by HMRC (i.e. an unapproved scale rate) will be treated as a round sum allowance (see NIM06160) and regarded as earnings for Class 1 NICs.