Are benchmark subsistence payments still tax efficient?

The rules for benchmark subsistence rates changed in April 2016, and they can no longer be used in a salary sacrifice arrangement. What are the changes and is there still a way to use benchmark payments tax efficiently?


Exempt scale payments

Until 6 April 2016 if you wanted to pay your employees tax and NI-free subsistencepayments using HMRC concessionary benchmark rates, you needed to obtain its approval first. This entailed carrying out a sampling exercise of employees’ subsistence expenditure to ensure the conditions for the payments were met. The position is now more straightforward.

Part of the new exemption

The benchmark rates were formalised in legislation with effect for 2016/17 and later. What’s more, they are covered by the general exemption which has applied to employees’ business expenses since 6 April 2016. This means it’s not necessary to ask HMRC for approval before paying them and only minimal ongoing checks are required.

Conditions and checking

Although the regulations require your employees to have bought at least one meal they do not, as the old rules did, require that this must include food and drink. HMRC’s guidance says there’s no need to check how much the employee spent, but you must ensure the travel is for a qualifying business purpose (see The next step ).

How much?

While the rates payable under the new regulations are the same as they were up to April 2016 the conditions which apply are slightly different. For 2016/17 the benchmark rates and conditions are:

  • £5 where the business trip lasts at least five hours in a day
  • £10 if it lasts at least ten hours
  • £25 if it lasts at least 15 hours and ends after 8.00pm
  • £10 where either the £5 or £10 rate is paid and the trip ends later than 8.00pm.

Example. An employee has a late business meeting. He leaves the office at 3.00pm and arrives home, direct from the meeting at 8.30pm. The trip exceeds five hours (but not ten) so you can pay him £5, plus an extra £10 tax and NI free, because the trip ended after 8.00pm.

No salary sacrifice

Until 6 April 2016 employers could use benchmark payments in a salary sacrifice arrangement. This involved paying employees who often travelled on business the tax and NI-free benchmark payments in exchange for them giving up an equal amount of salary. The effect was to reduce employers’ NI costs and increase the employees’ take home pay.

Tip 1. While benchmark payments aren’t allowed in a salary sacrifice arrangement they can be paid as an incentive. For example, if you don’t currently pay employees a subsistence allowance, or only pay modest actual costs, you can offer benchmark scale rates as a tax-efficient perk.

Tip 2. You can even offer employees benchmark payments instead or as part of a tax-efficient pay rise. As long as the employee has no right to receive extra salary as an alternative, they won’t fall foul of the salary sacrifice rule.


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