Briefing Subsistence Payments For Drivers January 2011


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RHA briefing tax allowable subsistence

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Briefing Subsistence Payments For Drivers January 2011

  1. 1. Drivers Overnight Subsistence Briefing PaperThis Briefing Paper aims to provide accurate, authoritative information and comment on the subject it covers. The informationcontained within it is correct at the time of publication. The Road Haulage Association cannot accept liability for any civil or legalaction taken by or against any user of this paper. January 2011.Important Note:Notwithstanding the information outlined below, there should not be any profit element of anysubsistence payment to a driver. If there is, PAYE is liable to the driver and NIC’s for bothdriver and employer for that occasion. Therefore, employers must make random checks toensure their drivers are incurring expenses that at least equal, if not exceed, the subsistencepayment being made.HMRC do require that, in order for an employer to be satisfied that expenses have beenincurred, random checks should be undertaken. The size of sample and frequency of checksare dependent upon: • The size of the company/business • The number of employees • The number of employees who qualify for the allowance. • The nature of the work undertaken by the employer and its employees. • The management processes that are already in place to monitor the payment of the allowanceThis will be up to the judgement of HMRC and be agreed with the relevant employer.It is important to note that the cost of subsistence only qualifies for the tax relief if incurredduring the qualifying travel. HMRC will not accept that tax relief is available for the costs offood or other subsistence incurred and brought from home, or, indeed, bought while driving toa depot to pick up the lorry or other vehicle for the day.Overnight Subsistence AllowanceLong distance LGV drivers normally receive a payment in respect of each rest period spent away fromthe home base. The payment includes a subsistence element and sometimes a further amountcalculated at normal time rate or as a round sum allowance. The part of any rest period paymentcalculated at the time rate or additional round sum payment is chargeable to tax.The subsistence allowance could cover the cost of the evening meal and breakfast in addition to thecost of overnight accommodation. Employers should be aware that:a) it is their responsibility to determine the nature of payments made to the employees;b) the subsistence element or other subsistence payments may be paid in full provided that i) documentary evidence is available to show that the employee concerned had spent the night away from home and his normal place of employment and incurred extra expense in so doing; and ii) the amounts paid are no more than a reasonable amount to cover the extra costs involved.c) provided that the documentary evidence((b)i above) is available, HMRC will accept that the nationally agreed overnight subsistence rate per night spent in the UK away from the drivers home and base does no more than reimburse the extra expense incurred.
  2. 2. d) An employer wishing to make subsistence payments in excess of this amount without deducting tax and may do so, provided that i) the payments merely reimburse the actual expenditure incurred and are made against formal claims from the employee concerned, or supported by suitable evidence, for example receipted bills etc; or ii) the arrangements under which such payments are made have received the formal approval of HMRCe) Subsistence payments in circumstances not covered above that exceed the nationally agreed limit should be subjected to tax.Suitable documentary evidence would include:• drivers log sheets• drivers expenses claims• receipts obtained on payment for lodgings eg bed and breakfast bills• parking receipts and itinerary records kept by the employer in the pay records, or separately, as evidence of nights away from home and base.However, the list is not exhaustive and further enquiries may be made by HMRC in order to satisfythemselves that no deduction of tax from payments made was justified. The subsistence payment canbe made to porters having nights out when accompanying drivers in removals operations where thedriver concerned is paid the subsistence rate, in accordance with the above conditions.Where digital tachographs are being used, a record must be kept confirming that the driver was awayfrom home and normal base overnight, and their overnight destination.Lorries with Sleeper CabsThe onus is on the employer to satisfy himself that any amounts paid free of tax are no more than areasonable reimbursement of the average allowable expenses of the driver whilst staying away fromhome and place of work overnight. The mere fact that a lorry has a sleeper cab does not prevent theemployer paying an amount tax free up to the nationally agreed limit provided that he is satisfied thatthe driver did incur expenses on overnight accommodation and meals.Where the employer knows that the driver uses the sleeper cab, he should pay free of tax only whatrepresents a reasonable reimbursement of:• evening meal and breakfast• washing facilities• upkeep of bedding in the cabProvided there is documentary evidence available to show that the employee concerned spent thenight away from home and his normal place of employment, HMRC will accept that a payment of 75%of the nationally agreed figure does no more than reimburse the extra expense incurred when thedriver uses the sleeper cab overnight. Where an employer wishes to make payments in excess of thisamount without deducting tax he may do so provided he satisfies the conditions outlined above in (d)Where digital tachographs are being used, a record must be kept confirming that the driver was awayfrom home and normal base overnight, and their overnight destination.
  3. 3. The amounts of overnight subsistence negotiated and agreed by the Road Haulage Association withHMRC, effective from 1 January annually, are as follows: • 2011 - £32.20 (sleeper cab rate is £24.15) • 2010 - £30.75 (sleeper cab rate is £23.06) unchanged from 2009 • 2009 - £30.75 (sleeper cab rate is £23.06) • 2008 - £29.85 (sleeper cab rate is £22.39) • 2007 - £28.62 (sleeper cab rate is £21.46) • 2006 – £27.55 (sleeper cab rate is £20.66) • 2005 - £26.90 • 2004 - £26.00 • 2003 - £25.1575% of the above figures should be used where drivers use sleeper cabs. These rates are negotiatedwith HMRC in January each year, and the new rates are published at TravelThe amounts shown above relate to allowance for nights away from home and base in the UK. Theymay not be appropriate for overnight subsistence on continental journeys, where costs can and dovary from country to country. Companies that have drivers travelling regularly to Europe, and beyond,may agree higher daily rates by providing their HMRC office with evidence of higher and other costseg costs of currency conversion and fluctuation; additional costs may include 2 or more showers perday (especially in Mediterranean areas in summer), bottled water, parking in secure areas(particularly taking account risk assessment and the need to protect the vehicle, load and driver -these areas tend not to provide the cheapest local food). Again, formal dispensation should be agreedbefore higher amounts are paid.Mid-Day Meal AllowancesMany employers meet the cost of, or contribute towards, a drivers mid-day meal by either issuingmeal vouchers or making a cash payment. These contributions may be treated as not taxable wherethey:a) are reasonable in amount, ie they do not exceed £2.00 per day; andb) are paid to long-distance lorry drivers whose duties oblige them to take meals away from their home and normal place of employment. Similar treatment may also be given to coach drivers in comparable circumstances, but not to drivers who have fixed or local routes.The guidance provided by HMRC states that where the amounts paid exceed the above thresholds,the excess should only be paid without deduction of tax if the employer satisfactorily demonstratesthat the additional amount paid only reflects the actual additional expenditure incurred by drivers orwhere dispensation has been given by HMRC. The onus is on the employer to satisfy himself thatexpenditure of the relevant amount is actually being incurred by the driver. If the employer has noacceptable evidence to justify the rate paid, the amounts paid in excess of £2.00 per day should bepaid under deduction of tax. However, it is recommended that if more than £2.00 is being paiddispensation should be sought. The £2.00 per day mid-day meal rate has not increased since 1988.Incidental overnight expenses" Incidental overnight expenses", up to the value of £5 per day if in the UK, or £10 per day outside theUK, can be paid tax free in addition to subsistence and a meal allowance in accordance withAppendix 8 of the HMRC booklet 480 (“General Rules for the Treatment of Employment Expenses”).Employees staying away from home overnight on business often incur additional expenses of apersonal nature, such as newspapers, laundry and calls home. Although this may arise as a
  4. 4. consequence of working away from home it is not incurred necessarily nor in the performance of theemployees duties. Under the expenses rule that apply to travel costs this type of expenditure wouldnot be allowable as a deduction. If this expenditure was met either wholly or in part by the employertax would be due. A special exemption provides that employers can pay for incidental overnightexpenses relating to a qualifying absence up to a tax free limit, without any tax consequences for theemployee – or NI for the employer. However, as with the subsistence and meal allowances,employers must ensure that the expenses are actually being incurred and have the necessary checksin place. If the employers payment exceeds the tax free limit the whole payment becomes taxable, notjust the excess. If these payments are to be made we recommend they are done so with theknowledge and written consent of the local HMRC office.National InsuranceWhere payments are made tax free in accordance with the requirements outlined above, they do notusually attract NI.P11DsThe mid-day meal allowance and overnight subsistence allowance should be included in P11Dsunless the company concerned has agreed dispensation with their own local HMRC office.Licence & Medical CostsWhere an employed driver meets the cost of renewing an LGV licence and any medical costs directlyrelated to renewing that licence from his or her own pocket, the driver may claim tax relief for thosecosts. Drivers who get a tax return can make a claim by entering the appropriate amount on thereturn. If they do not get a tax return, they can make a claim by letter or on form P87 which they canrequest from their tax office.Self Employed DriversHMRC has confirmed that the agreed rates do not apply to drivers who are self-employed. The rulefor them is that in calculating their profits for tax purposes they can deduct expenses incurred "whollyand exclusively" for the purposes of their trade. The following has been provided by the HMRC, fromtheir Business Income Manual.BIM37670 - Wholly & exclusively: Duality of, or non-trade, purpose: Accommodation and subsistence:The approach in itinerant [travelling] trades:What to do in practiceThe cost of meals taken away from the place of business is not in general an expense incurred whollyand exclusively for business purposes, since everyone must eat in order to live. Where such costs aredisallowable they cannot be apportioned to allow extra costs incurred from the necessity of eating anddrinking away from home or the place of business.Itinerant trade journeys outside the normal patternBut extra costs may be incurred wholly for business purposes where a business is by its natureitinerant (for example in the case of commercial travellers), or where occasional business journeysoutside the normal pattern are made. Inspectors may allow a deduction for reasonable expensesincurred in these circumstances.Overnight accommodation and subsistenceWhere a business trip necessitates one or more nights away from home, the hotel accommodation
  5. 5. and reasonable costs of overnight subsistence are deductible. This does not extend to overnightaccommodation and subsistence at the base of business operations, even if there is a contractualrequirement for the trader to reside in a particular place. The reasonable costs of meals taken inconjunction with overnight accommodation are allowable, whether or not paid on the same bill.Long distance lorry drivers subsistenceThe same treatment may be extended to self-employed long distance lorry drivers who spend thenight in their cabs rather than take overnight accommodation. The text of a Tax Bulletin article, August1993, page 88 is as followsLorry drivers: trade deductions: meals: cost ofIn considering the application of ICTA88/S74 (a) to the cost of meals taken away from the place ofbusiness, the Courts have held that no deduction is due because it cannot be said that the expensewas incurred wholly and exclusively for the purposes of the trade since everyone must eat in order tolive.However, HMRC have long accepted reasonable claims for the cost of evening meals and breakfasttaken in conjunction with overnight accommodation if the cost of the accommodation would otherwisebe allowable as an expense in carrying on the trade or profession. This practice has received theapproval of the Courts.Long distance self-employed lorry drivers have therefore been able to claim a deduction for thereasonable cost of meals taken in conjunction with overnight accommodation.HMRC have been asked whether this treatment can be extended to such drivers who spend the nightin their cabs rather than take overnight accommodation and have confirmed that it can.It should be emphasised that it is only `reasonable expenses which may be allowed and theexpenses claimed must be supported by adequate contemporaneous records.Ruth Pott. January 2011.