Although the rules around the tax-free reimbursement of travel and subsistence costs to employees and directors are complicated, it’s often very appropriate for an employer to pay such expenses. When it is, it’s common for the individual to make an expense claim for the costs they’ve incurred, backed up by receipts (though if it’s your own company it’s easier for the company to just pay the costs in the first place, of course).
There’s an alternative system - fixed “scale rate” expenses, based on typical costs in the place being visited. HMRC are content for these to be used instead of actual costs, as long as there’s some reasonable review process in place before the expenses are paid out. There are costs for accommodation, along with the costs of meals, drinks and travel within the city (the total of those last three things being known as the “residual” costs.
However, this is a shortcut to making a reasonable but admin-light reimbursement of costs that really were incurred. It’s an estimating technique that HMRC are content with, not a flat-rate allowance. If no costs have been incurred, there’s nothing to estimate!
There are only a couple of exceptions to this.
- If the individual is having their accommodation and meals provided for them by a customer, HMRC will permit a payment of 10% of the residual costs. It’s the same if they’re staying with a friend.
- If the individual is being provided with self-catering accommodation, then they can claim 80% of the residual costs for the first week, and 50% thereafter.
HMRC have a bunch of other examples, which are quite helpful if you’re dealing with these situations.
If you’re not paying for your own accommodation and meals, you cannot legitimately be paid the full scale rates tax-free! The daily scale rate for someone paying for their own accommodation and meals in New York is $318.50. If you’re not paying for your own accommodation and meals, then the 10% of the residual costs that you’re allowed to claim is $10.25. Quite a difference! Be careful.