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Reimbursing employee expenses for business travel can be a time-consuming task for employers, especially when reimbursing actual costs from receipts provided by employees.

Many employers are vaguely aware of flat-rate expenses and benchmark rates but are unable to utilise them properly in their business due to a lack of knowledge about which expenses can and cannot be reimbursed in this way.

Tax preparation specialist and managing director of DSR Tax Claims Ltd, David Redfern, explains how employers can use benchmark expense rates to reimburse employee travel expenses.

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How to reimburse employees using HMRC’s pre-agreed benchmark expense rates

David Redfern DSR TaxBy David Redfern

To simplify reimbursing employees for expenses incurred while performing their work duties, employers can use HMRC’s benchmark rates, set out in the Income Tax (Approved Expenses) Regulations without the prior approval of HMRC. These benchmark rates set out the rates at which an employer can reimburse an employee for expenses incurred while working away from their usual place of work or home, although employees must meet certain qualifying conditions.

Redfern stated: “These benchmark amounts represent the maximum tax and NIC-free amounts which an employer can reimburse although they can pay less if they wish. Where paying less, an employee isn’t entitled to claim tax relief on the difference although they can claim a deduction from HMRC if their actual expense was greater than the amount they were reimbursed.”

Where employees are away from home or their normal place of work for more than five hours, in a way which is substantially different to their ordinary commute, employers can provide them with a maximum meal allowance of £5 per day. Where the time away exceeds 10 hours, the maximum allowance is raised to £10 and where they will be away for a time period in excess of 15 hours and where it is ongoing beyond 8pm, an employer can reimburse for meals up to a maximum allowance of £25.

Redfern explained: “In order to qualify for the benchmark rates, the employee must be away from home or their normal place of work for a continuous period, substantially different to their usual commute and most importantly, the employee must have actually incurred the expense and have retained appropriate evidence of that expense, such as a receipt.

“Since 6th April this year, employers have no longer been required to run a sampling exercise – however, there must be a system in place to check that employees have actually undertaken the work-based travel in order to claim the allowances.”

HMRC defines a meal to include food and a drink. In addition, employers can use Approved Mileage Allowance Payments(AMAPs) to reimburse mileage costs up to 45p per mile for the first 100,000 miles. There are no agreed benchmark rates for overnight accommodation costs or rates for staying with friends or family so actual costs will need to be used for reimbursement.

Where employers feel that benchmark rates are not suitable for the expenses incurred by their employees, they can apply to HMRC to set a bespoke rate for their company. The bespoke rates must be a reasonable estimate of the expenses incurred by employees.

HMRC requires that any company applying for a bespoke arrangement conducts a sampling exercise in order to ensure that the bespoke rates are a true reflection of expenses, using a random sample of 10 percent of eligible employees for one month.

Redfern cautioned: “HMRC will need to be satisfied that the sample is a truly random sample – maybe by checking each 10th eligible employee by alphabetical order so that the sample is not cherry-picked in order to generate the most favourable rate to the company.”

Once the bespoke arrangement has been agreed, the company is required to operate a checking system to ensure that reimbursements are only made in the case of genuine business travel and that appropriate evidence is retained by the employee.

In addition to benchmark and bespoke arrangements, there are a number of agreed flat-rate expenses which allow employees to claim tax relief on employment expenses such as laundering their work uniform, maintaining and replacing tools and equipment, working from home and professional fees and subscriptions.

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