This month we look at the tax issues around Per Diems and other scale rate allowances for employees travelling on business either overseas or within the UK.

Before we start, we should clarify what is meant by "Per Diem". In the context of employment tax a Per Diem is basically any fixed and pre-determined expense paid to an employee to cover additional living costs while working away from their normal place of work, usually paid without the need for receipts. The vast majority of Per Diem payments are made in relation to overseas work assignments but some employers do pay Per Diems for UK based assignments which are more often referred to as fixed rate or round sum expenses.

HMRC interest in such expenses has increased hugely in recent years specifically around the lack of control and monitoring exercised by those employers paying fixed sum expenses to their staff and the tax compliance failures that are often found as a result, leading to some significant settlements in many cases.

General Principles

Despite what some PAYE Inspectors may suggest, HMRC are happy to accept the practice of paying unreceipted, fixed, expenses without any tax consequences - with the major caveat that this has to be on their terms ! The two main points that HMRC need to be satisfied on before they will give the 'all-clear', apart of course from the obvious condition that the expense must have been incurred "wholly, exclusively and necessarily" for business, are:

1) That an expense has actually been incurred by the employee whilst working in a different location.

2) That the expense allowance is broadly in line with the amount paid out by the employee. In other words, there is no "profit" element for the employee.

If HMRC can be satisfied that both of the above apply, and that the employer has mechanisms in place to monitor the expenses being paid to employees, then it should be possible to agree that the expenses do not need to be reported on forms P11D each year and that there is no tax or NI due on the agreed amounts.

However, if HMRC suspect that the employee may be profiteering from the payments, or that the employer's expense processes are inadequate for tax compliance purposes, they could insist that the payments are processed via payroll and be subject to PAYE and National Insurance in full. Or, in the case of a review into payments already made, seek to collect retrospective tax and NI liabilities via a settlement which will include interest and probably penalties for the employer as well.

HMRC have adopted a much stricter stance on this over the last few years making it a much higher tax risk area for employers than it has ever been.

However, it is not all bad news !! HMRC has laid down some guidelines over the last year or so to help employers to comply with the tax rules if they wish to pay unreceipted and fixed expenses which has been well received by many employers. These guidelines fall into two categories - UK based travel and travel outside the UK.

Scale Rate Expenses for UK Based Travel

HMRC has set maximum subsistence rates that can be paid by employers tax and NI free in relation to employees travelling within the UK on business.

The rates are currently as follows where employees are required to incur extra meal costs:

Breakfast rate £5 The employee must leave home before 6am to commence a qualifying business journey, i.e. to somewhere other than the normal place of work, and does not usually do so
One meal rate £5 The employee must be on qualifying travel, i.e. away from the normal place of work, for at least 5 hours for this rate to be paid
Two meal rate £10 The employee must be on qualifying travel, i.e. away from the normal place of work for at least 10 hours for this rate to be paid
Late evening meal rate £15 The employee must be working after 8pm, does not usually do so, and must be on a qualifying business journey


  • It is possible to pay an employee more than one of these rates per day, the maximum being 3 meal costs in any 24 hour period.
  • Employers paying up to, and including, these rates can apply for the payments to be within a P11D Dispensation which basically means that the payments do not need to be reported to HMRC each year and HMRC accepts that no tax or NI charges apply.
  • Where no Dispensation agreement is obtained, the amounts paid should be reported each tax year on the employee's form P11D and the employee will then be required to make a claim for relief via the Self Assessment system.
  • There is no corresponding benchmark rates for accommodation costs - HMRC expects all employers to reimburse accommodation costs on a receipted basis. This is on the basis that receipts for accommodation costs are easily obtained in this country.
  • When introducing these rates, HMRC clarified that they would no longer accept fixed payments in relation to employees 'Staying with Friends/Family'.

Benchmark Rates for Overseas Travel

Similarly, HMRC has confirmed benchmark rates for unreceipted meal costs and accommodation costs for overseas business travel by employees.

The rates payable depend on the time spent by the employee at a particular location and vary by country to country and even city to city and can be found at this link


  • Various rates are provided within the table, the most commonly used ones being:


  • A "room rate" which provides the benchmark accommodation cost per night in each location
  • A "total residual rate" which covers the cost of all meals in a 24 hour period as well as travel between the hotel and office location
  • A "24 hour rate" which is the two above rates combined
  • An "over 5 hour rate" for meal costs
  • An "over 10 hour rate" for meal costs for periods of more than 10 hours but less than 24 hours.

In the interests of keeping the length of this article manageable, the main points to note in relation to the use of these rates are as follows:

  • There is flexibility in how employers can use the rates, e.g. paying maximum meal rates but lower accommodation rates
  • Employers may be able to pay additional allowances over and above the rates within the table e.g. Personal Incidental Expenses, en-route refreshments, etc
  • Amounts paid within the benchmark rates are automatically excluded from P11D reporting, i.e. the employer does not need to separately apply to HMRC for a P11D Dispensation for these payments.

Payments Not Within HMRC Benchmark Rates

Employers wishing to pay more than HMRC's benchmark rates will need to be able to demonstrate to HMRC that any higher rates are justifiable.

This usually involves providing a sample of expenses within a particular location over a set period to demonstrate the 'reasonableness' of the suggested fixed rates. Within the UK, this may involve some rigorous testing by HMRC including the use of local restaurant menus to ascertain typical meal costs at each location. This can often be the stumbling block in obtaining a favourable agreement from HMRC.

For overseas locations HMRC are not always so obstructive in agreeing higher amounts but it can still be problematic producing proof of higher living costs in some overseas locations so reaching agreement can still take some effort in these situations.

Where HMRC does not grant agreement for the employer to pay higher amounts, it should only be the excess payments above the benchmark rates that are chargeable to tax and NI deductions

Employers paying higher amounts than the benchmark figures without upfront HMRC agreement on the tax and NI treatment run the risk of the full allowances being subject to PAYE and NI if HMRC become aware of this.


Many businesses prefer to pay fixed expenses to employees travelling on business as a way of both reducing administration and controlling costs of the business.

Given the level of focus, and success, of HMRC in recovering tax and NI on Per Diem payments in recent times, it is vital that employers paying such expenses ensure that they have properly considered the tax position to avoid any nasty surprises further down the line, not to mention a sizeable payment to HMRC.

The benchmark rates set by HMRC are in place to make it easier for all parties and it is certainly advisable for all employers to consider paying within these rates as this can remove most, if not all, of the risks from a tax compliance point of view. We should say, however, that even if the rates being reimbursed to employees are within HMRC's benchmark figures, an HMRC challenge could still be possible where the internal expense processes are poor, e.g in relation to confirming an employee's work movements, expenses being incurred, fraudulent claims, etc. Failure to monitor employee movements, particularly in relation to overseas travel, is one of the main causes of tax problems with Per Diem expenses based on our experience.

Where the HMRC rates are inadequate for a particular business, it is essential that the business engages with HMRC as early as possible to obtain agreement on the tax and NI treatment of its own rates as failure to do so could end up being very costly indeed if HMRC considers these retrospectively.

 As ever, please do let us know if there any questions on the above or if assistance may be required in this area.

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