Understanding scale rate payments:
As an employer providing business or private expenses for your employees, you have certain tax, National Insurance and reporting obligations.
The rules on cash sum payments for business expenses cover:
- cash sums you provide to meet the costs of your employees’ expenses
- expenses they’ve paid for themselves that you reimburse
- ‘scale rate payments’ you pay at a level agreed with HM Revenue and Customs (HMRC)
- ‘round sum allowances’, which you give to an employee regardless of how they spend them
Scale rate payments
If you provide your employees with a set amount of cash to pay for some common business expenses like travel and meals, these are known as ‘scale rate payments’.
As long as your employee has actually spent the scale rate payment on business expenses, you will not need to check every single receipt – it’s fine to just check a sample.
You can set up a scale rate payment by either:
- agreeing a scale rate with HM Revenue and Customs (HMRC) by providing evidence of typical expenses (for example receipts)
- using HMRC’s benchmark scale rates for subsistence costs
HMRC also provides benchmark rates for employees travelling outside the UK.
What to report and pay
You must report the scale rate payments on form P11D unless they are exempt or no more than the agreed scale rate or benchmarked scale rate. This means you do not have to include them in your end-of-year reports.
You do not need to deduct or pay any tax or National Insurance when reporting scale rate payments.
Payments for private expenses count as earnings.
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