The tax-free benefits of business travel
Travel expenses
Payments you make to cover an employee’s expenses are exempt from tax and NI if they are incurred wholly, exclusively and necessarily for their job. However, there are additional exemptions relating to business travel which potentially carry some personal benefit. As these aren’t taxable or liable to employers’ or employees’ NI, and don’t need to be reported to HMRC, it’s important that you know what the additional exemptions cover.
Daytime travel
Aside from the cost of making a business journey, you can pay a tax and NI-free amount to cover subsistence. The round sum amounts are:
- ÂŁ5 where the business trip lasts at least five hours in a day
- ÂŁ10 if it lasts at least ten hours
- ÂŁ25 if it lasts at least 15 hours and ends after 8.00pm.
Note. You can pay an additional ÂŁ10 where either the ÂŁ5 or ÂŁ10 rate is paid and the trip ends later than 8.00pm.
Example. An employee has a late business meeting. They leave the office at 3.00pm and arrive home, direct from the meeting, at 8.30pm. The trip exceeds five hours (but not ten) so you can pay them ÂŁ5, plus an extra ÂŁ10 tax and NI free, because the trip ended after 8.00pm.
Tip. You can instead pay the actual cost of an employee’s meals while travelling on business even if they exceed the exempt amounts. However, unlike the round sum, the employee must provide an expenses claim to justify the payment. Where you can justify it HMRC will agree to higher rates of round sum payments (see The next step ).
Overnight expenses - generally
Also exempt is the cost of an overnight stay as part of a business trip where a stopover is necessary. The exemption covers accommodation and meals (as long as they are of a reasonable scale). You can pay employees up to ÂŁ5 per night on average for each business trip in the UK, or ÂŁ10 per night for trips outside the UK.
Tip. There’s no restriction on what the money is spent on as long as the expense was incurred during a business trip which includes an overnight stay.
Trap. Where the average expense per night exceeds the exempt amount, the whole payment is taxable and subject to NI, not just the excess over ÂŁ5.
Overnight expenses - drivers
Subject to conditions, if you employ delivery drivers a special exemption applies to round sum payments, i.e. no receipts are required for overnight journeys (see The next step ). The tax and NI-free amount per night is £26.20 if the driver stays in their cab or £34.90 where they stay in other accommodation. If you don’t think the exempt rates are sufficient you can negotiate with HMRC to pay a greater amount.
Tip. The exemptions mentioned above can be used together.
To obtain HMRC’s agreement to a higher exempt subsistence allowance and for the conditions of the exemption, visit http://www.tips-and-advice-tax.co.uk , Download Zone, year 21, issue 02.