Per Diem allowance for employee on a business trip

[rain_carter]

Hi everyone,
I've got a question about per diem allowances for employees of a for-profit company who travel outside the normal place of work. Does the employer have to pay per diem allowances to the employees on a business trip according to fixed rates set by HMRC, or can they reimburse the employees based on the provided receipts (hotel, restaurant receipts)? In the latter case, the 'profit' element for the employee will be excluded.
I didn't find any article in the UK Labour Law that would specify this procedure. But what I gathered from various articles is that some companies require itemised expense reports accompanied by receipts documenting money spent to repay their employees what they actually spent, and others opt to name a set amount.
But what does it depend on? What is stated in the Labor Law? Something should be prescribed by the law or HRMC guidelines, one of the above options. And then, how come other companies choose the other?
Any comments will be greatly appreciated.

 

[AT Accounting]

As a former traveling auditor I am well versed in the "joys" of living out of a suitcase...

HMRC set some benchmark rates some years ago which have never been adjusted for certain per diem traveling expenses. All information from (or linked to from) here:

http://www.hmrc.gov.uk/manuals/eimanual/eim05200.htm

Especially EIM05231 & EIM05250

To use these rates you have to show evidence that you have agreed the allowances will not generate a profit element for the employee.

Of course you also have to prove to your employees that they will not be out of pocket....

Generally in my experience businesses prefer to reimburse the actual amounts incurred by the employee for which receipts would be needed as proof of what was spent. This is much easier to justify to both the HMRC and the employees incurring the expenses.

Why choose one over the other? Why choose anything over something else. The Per Diem rate may be easier to administer once rates are set, but may be unpopular with employees (if you expect me to stay away from home I expect a decent breakfast, for example...). Receipts covers the actual cost but will need someone to check the receipts to the expenses claim.

In addition to the above HMRC have a rate for incidental overnight expenses. £5 (£10 overseas) to cover the sort of sundry expenses where you may not get a receipt, or where the paperwork would be onerous for the amounts involved.

 

[rain_carter]

As a former traveling auditor I am well versed in the "joys" of living out of a suitcase...

HMRC set some benchmark rates some years ago which have never been adjusted for certain per diem traveling expenses. All information from (or linked to from) here:

Especially EIM05231 & EIM05250

To use these rates you have to show evidence that you have agreed the allowances will not generate a profit element for the employee.

Of course you also have to prove to your employees that they will not be out of pocket....

Generally in my experience businesses prefer to reimburse the actual amounts incurred by the employee for which receipts would be needed as proof of what was spent. This is much easier to justify to both the HMRC and the employees incurring the expenses.

Why choose one over the other? Why choose anything over something else. The Per Diem rate may be easier to administer once rates are set, but may be unpopular with employees (if you expect me to stay away from home I expect a decent breakfast, for example...). Receipts covers the actual cost but will need someone to check the receipts to the expenses claim.

In addition to the above HMRC have a rate for incidental overnight expenses. £5 (£10 overseas) to cover the sort of sundry expenses where you may not get a receipt, or where the paperwork would be onerous for the amounts involved.

Thanks! That was very helpful!
So there is no law that would prohibit employers from reimbursing their employees' business trip expenses based on the receipts provided, but in order to save resources that would go into checking the receipts, employers may choose to pay fixed amounts (in this case, they have to apply to HRMC).

Now I've got a few other questions and I'd greatly appreciate it if you could help with them as well.

Are benchmark rates and scale rates the same thing?

What do subsistence payments cover? Meals, accommodation, hotel-to-office transfers? And apart from the said expenses, there is also a fixed amount for incidental expenses, right?
Are subsistence payments and Per Diem allowance the same thing?

 

[AT Accounting]

Are benchmark rates and scale rates the same thing?

A benchmark rate is a guideline. If your calculations show that your employees average £4.50 for breakfast you'd agree £4.50 with HMRC for breakfast. Benchmark figures are what they set for Subsistence payments.

What do subsistence payments cover? Meals, accommodation, hotel-to-office transfers? And apart from the said expenses, there is also a fixed amount for incidental expenses, right?

Subsistence means to support life, so subsistence expenses are food and drink. Travel expenses are transport and accomedation. In terms of what is claimable, as with anything, it is any amounts incurred because of your job. So hotels, taxis, trainfares, breakfasts, dinners etc.

Yes as I mentioned £5 (£10 overseas) may be paid to cover incidental costs.

Are subsistence payments and Per Diem allowance the same thing?

Some subsistence payments may be Per Diem allowances, but not all Per Diem allowances are subsistence payments.

 

[rain_carter]

Thanks!
But are these rules regulating the relationships between an employer and its employees going on business trips specified somewhere in the Labour Law? Or are they provided only by HRMC?
There is nothing about it in Employment Rights Act 1996. But shouldn't such things be regulated by Labour Law?

 

[AT Accounting]

You would have to ask in Legal for an answer to that.

I assume its covered by unfair working conditions/practices if not specifically spelled out. Besides who would work for an employer who didn't provide some kind of recompense for paying for hotels etc.?

 

[rain_carter]

Ok,
Thank you very much!

 

[ChristianHammerton]

This is all very interesting and useful. Thank you very much. If I may, can I add a question? I wondered if the rule stipulate that freelancers who claim per diems should invoice for them? Thank you.

 

[Scalloway]

This is all very interesting and useful. Thank you very much. If I may, can I add a question? I wondered if the rule stipulate that freelancers who claim per diems should invoice for them? Thank you.

The rules apply to employees, not self employed people. If you want paid then you should send an invoice.