Detailed Guidance for Employers in reporting reimbursed expenses to HMRC

The below is courtesy of BKL, Chartered Accountants, London & Cambridge

As from 6 April 2016 the method of reporting reimbursed expenses to employees will be changing and that dispensations for expenses will be abolished as from 5 April 2016.

Under current law, employers are obliged to notify HMRC (on form P11D) of expenses reimbursed to employees and directors. The individual receiving the reimbursement then makes his or her own claim for tax relief (under s336 ITEPA 2003) if appropriate. To short-cut this, employers can (subject to meeting conditions) obtain a "dispensation" from HMRC that specified expenses; broadly reimbursed employment expenses which do not give rise to any net charge to tax, need not be reported.

As from 6 April 2016 the law changes and tax-allowable expenses will no longer be taxable at all. As such, there is no need for a dispensation.

However don’t throw away your dispensation just yet. HMRC can normally raise enquiries up to four years after the end of the tax year. So even after April 2016 you will need to keep evidence showing that you have historically complied with the terms of any dispensation (such as in your policies, procedures, sign-offs and so on).

Bespoke rates

If you have a dispensation it’s likely to include bespoke scale rates for things such as subsistence and overnight stays. If you want to continue to use these rates you will need to re-apply for approval of them before 6 April 2016 or they will no longer be valid and the amounts will fall outside the new rules and be subject to tax and NIC. Where the existing dispensation is less than five years old, a simplified fast-track application can be made to HMRC for any bespoke rates to continue to apply until the fifth anniversary of their agreement.

Where a dispensation is not currently held and you wish to pay bespoke rates, you will need to obtain HMRC approval to these rates. It will be necessary to explain the reason why bespoke rates are appropriate and that they are reasonable.

In addition, a checking system must be in place to confirm that the expense has been incurred in accordance with the bespoke rates / agreement.

Benchmark scale rates

HMRC have set Benchmark scale rates, which employers may use without needing the prior approval of HMRC. These are as follows.

Minimum journey time

5 Hours
10 Hours
15 Hours

Maximum amount of meal allowance


Where a meal allowance of £5 or £10 is paid and the qualifying journey in respect of which it is paid lasts beyond 8pm a supplementary rate of £10 can be paid.

A meal is defined as a combination of food and drink and would take a normal dictionary meaning. Where employees are required to start early or finish late on a regular basis, the over 5 hour and 10 hour rate, whichever is applicable, can be paid provided that all the other qualifying conditions are satisfied.

Qualifying conditions - Benchmark scale rates must only be used where all the qualifying conditions are met. The qualifying conditions are:

  • the travel must be in the performance of an employee’s duties or to a temporary place of work, on a journey that is not substantially ordinary commuting;
  • the employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours;
  • the employee should have incurred a cost on a meal (food and drink) after starting the journey.

Employers can pay less than the published rates. If an employer pays less than the published rates, employees cannot claim tax relief on the difference, but they can claim a deduction from HMRC for the difference between what they actually spent on the expense and the amount reimbursed by their employer in the normal manner.

If a higher amount is paid without agreeing a tailored scale rate with HMRC, the excess should be subject to tax and NICs.

An employee can only be reimbursed for a meal once. If the cost of an evening meal or breakfast is reimbursed on an actual basis, because it is included in the cost of an overnight stay, the employee would not also be entitled to the published rate for breakfast or late evening meal.

Overnight subsistence rate - A rate has not been set for overnight subsistence. Employers wishing to agree a rate with HMRC for overnight subsistence will need to apply using the bespoke rate process. (See HMRC guidance at EIM30250.)

Staying with friends and family rate - A rate has not been set for a scale rate payment for staying with friends and family. The travel rules still apply to actual costs of subsistence incurred while staying with friends and family.

Lastly, the new rules require that if the exemption is to apply, employers must have a checking system in place for ensuring that payments or reimbursements are only made on occasions where the employee would be entitled to a deduction from their earnings and has incurred and paid an amount in respect of expenses.

Actual receipts

If expenses are reimbursed using actual receipts, then HMRC prior approval is not required, although a checking system is still required.

Checking system

In respect of the checking system, HMRC have produced four sample models based on the size of the business (Model A: Large Employer with more than 1,000 employees, Model B: Large Employer with less than 1,000 employees, Model C: Small Employer with less than 100 employees and Model D: One Man Company).

In broad terms the checks of expenses must be independent and cross referenced to employee diaries, work schedules and time sheets (where held) to confirm the performance of the employees duties on the date of the claim, and receipts to demonstrate that the employee had in fact incurred the costs they are claiming. For one man companies, an independent third party should perform monthly checks to confirm that that the relevant conditions for the exemption were met on each occasion.