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Scale Rate

by bob.jones on April 26th, 2010
Many employers who have dispensations want to take it a stage further – it is not always possible to obtain a receipt in every case for every item of expenditure. Before considering the scale rate there is the legal requirement that the expense has to be allowable for tax purposes. It is a long established legal principle that we eat in order to live and not in order to work – on the face of it there is not going to be any allowance for the purchase of food.  However, case law has decided that where, by virtue of a person’s employment,   more is spent on food than would otherwise have been the case then the “extra” is allowable.  Of course, from a practical point of view, it is highly unlikely that anyone is going to be able to quantify that “extra” amount.  Where it can be demonstrated that “extra” has been spent then HMRC are content to allow the whole amount of the expenditure.
There are occasions where it is difficult or impossible for an employee to obtain documentary evidence of an expense that has been incurred. This is often the case with meals and subsistence. Under these circumstances an employer can seek an agreement with HMRC for a reimbursement to be made at a scale rate rather than a direct reimbursement of actual expense incurred.
Scale rates are calculated on the basis that that they do no more than reimburse the expenditure incurred by the employee. It is stressed to HMRC staff engaged in this type of work that they can apply this treatment only to expenses that are widely incurred, in broadly similar amounts and for which it is often difficult to get receipts.  Subsistence is an area that falls within this definition and the requirement is that HMRC set the amount at a fairly modest level which, taking one day with another, will be enough to cover the relevant expenses.  They are not to be pitched at a level to cover the highest amount that an employee might spend.
In addition scale rate expenses should be paid only on days when the employee has incurred an allowable expense.  A scale rate payment which is paid irrespective of whether the employee has incurred an allowable expense is simply a payment of earnings and is taxable under the normal charging provisions.
Before HMRC approve a scale rate the employer concerned has to provide evidence of the actual expenditure.
The HMRC officer considering the application has to be satisfied that the proposed scale rate payment is set at a level which broadly represents the amount that the employee is actually spending. Employers need to be prepared to provide HMRC with evidence of the amount that their employees are spending. Such evidence should ideally be in the form of receipts but, as we are talking about expenditure for which receipts are sometimes difficult to obtain HMRC will consider an employee’s record of the expense incurred provided it is made at the time the expense is incurred.
HMRC accept that it will not always be possible for every employer to obtain evidence of expenditure incurred by every one of its employees.  Where that is the case HMRC will accept evidence in the form of a sampling exercise provided the sample is random, covers 10% of the eligible employees and lasts for a period of one month. This sampling exercise is intended to determine the amount that employees are spending on allowable expenses.  HMRC does not accept that allowable expenses can include the cost of a packed lunch prepared at home from items purchased as part of the employees ordinary domestic shopping or other food brought from home.  The cost of sandwiches etc bought on the way to a temporary workplace can however be included.
The above is based on the HMRC instructions to staff but it has to be borne in mind that applications for scale rates are dealt with on an individual basis and, therefore, it is impossible to comment on specific examples.

Summary

To summarise, therefore:
  1. Travel and subsistence are linked and for a meal allowance or overnight subsistence to be allowable the travel has to be to a temporary workplace or the person concerned has to hold a travelling appointment. If the journey does not qualify for tax purposes then scale rate payments are included with pay and tax.
  2. Where food is concerned the basic legal principle that more has been spent than would otherwise have been the case still holds good – otherwise the scale rate should not be claimed or payment should  be included with pay and taxed.
  3. The cost of a packed lunch prepared at home or food brought from home does not qualify – the scale rate should not be claimed or if made then it should be included with pay and taxed.
  4. A scale rate can be paid only if the employee has incurred the expense. It follows, therefore, that if an employee attends a temporary workplace and purchases lunch he will be able to claim the scale rate applicable to lunch only. If in attending the temporary workplace the employee purchases two meals then he will be able to claim the scale rate applicable to two meals. If the employee is away overnight then he will be able to claim the scale rate for overnight subsistence and so on. It is important to note that the employee has to incur the expense – it is not simply a matter claiming as a matter of routine – the legal requirements still hold good that the travel has to be allowable for tax purposes, where food is concerned more has to be spent than would otherwise have been the case and that the expense has to be incurred. If a person is provided with a meal then the expense has not been incurred and the person is not eligible to claim.
    If a meal is included as part of another expense of travel, for example, breakfast on the train, then there is no expense incurred on the meal and it is not appropriate to claim. It is not sufficient simply to make a qualifying journey and claim the meal allowance – the expense of the meal has to be incurred.
  5. A scale rate is set at a modest level and is designed to cover, taking one day with another, the expense incurred. If the information provided to HMRC in the sample is such that employees generally spend on average £2.50 on a sandwich for lunch then the scale rate should reflect that fact. If the information provided to HMRC in the sample is such that employees generally spend on average £10 on lunch then the scale rate should reflect that fact.
  6. Scale rates for meal allowances are linked to time spent away – for example in order to claim for lunch the claimant must be away for, say 5 hours. There is no statutory limit here – it is a common sense rule of thumb that will be applied by HMRC. On being granted a scale charge the individual employer will be informed by HMRC of the various requirements – and for a lunchtime meal the time requirement will probably be 5 hours………but ……Take this scenario for example – I work in Chester and I arrange to see you for a 5 minute meeting to sign your tax return 10 miles away – I leave Chester at 12 noon – we meet at 12.20 – we do the business – I then partake of a slap up meal – and return to Chester for 2 pm. That is stretching credibility – was the expense necessary? – well it could have easily been avoided by arranging the appointment for mid morning or mid afternoon – or I could have returned to Chester for 1 pm and incurred my “normal” lunchtime expense.
Similarly you may be away for a morning appointment intending to be back for lunch – total expected duration 3 hours – you are delayed due to an accident and the time away exceeds the 5 hours – you do not partake of a meal because you were stuck in the so even though you were away for the required duration no expense was incurred.

Benchmark Scale Rates

HMRC have introduced benchmark scale rates – as from 6 April 2009 – you will find details of these at
Audit requirements are still necessary – call me for further information.

From → Expenses, HMRC, Tax

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