Tax-free meals new statutory rates
HMRC’s concessionary practice, which allow employers to pay their workers a tax and National Insurance free flat rate allowance for subsistence when they travel on business , will be replaced by a statutory version on 6 April 2016. The rules for the old and new systems are similar except that HMRC is now obligated to accept all reasonable arrangements for flat rate allowances proposed by employers.
If you already have HMRC approval under a concessionary arrangement, you can continue to use it as long as it was approved later than 5 April 2011. When it’s five years old you should renegotiate an allowance under the new rules.
Under both old and new rules HMRC’s approval usually lasts for five years.
So what’s the Tax and national Insurance advantages for the employee?
Naturally, a flat rate allowance will rarely match actual expenditure on subsistence. There’s therefore an incentive for employees to spend less on food and drink than the allowance yo pay them, so that they can pocket the difference as a tax and national insurance-free perk
Admin advantages
The advantages of paying flat rate subsistence allowances are fairly obvious. It means there’s no need for directors and employees to obtain receipts for sandwiches, drinks or more substantial meals while travelling for work. in return there’s less paperwork for your accounts department to process. It also limits the amount employees receive for their meal expenses.
Getting HMRC approval
Before you can pay flat rate subsistence allowance you must obtain approval from HMRC. This involves carrying out a sampling test of subsistence claims made by directors and employees. While there are no statutory guidelines for this HMRC suggests that you should select 10%of your employees at random, record their subsistence expenses for a one month period and send them the details. Or if you don’t want to go to the trouble of an expenses sampling process you can use HMRC’s flat rate benchmark allowance instead. These can be used without prior approval from HMRC.
HMRC’s current benchmark rates:
- Breakfast rate up to £5
- One meal ( 5 hours) rate up to £5
- Two meals (10 hours) rate up to £10
- Late evening meal rate up to £15
These rates were last set in April 2009.
Once you’ve received HMRC approval you can pay the flat rate allowances, but you must have a system for checking that your employee’s claims are genuine. HMRC offers some helpful pointers on how to do this.