Scale rate payments for subsistence were introduced by HMRC themselves. They were designed to avoid the administration involved in processing thousands of very small expense claims. Instead they allowed their employees to claim a fixed amount each day (around £5) to cover their costs. No receipts were needed, just an undertaking that the claim was genuine inasmuch as a cost for subsistence had been incurred. It was a disciplinary offence for workers to claim this allowance when no cost had been incurred. It is exceptionally difficult for umbrella companies to police scale rate claims. There have been a number of companies found to have been encouraging employees to claim a fixed amount each day regardless of whether or not any cost had been incurred.
Dispensations & Scale Rate Payments
Therefore many dispensations that were issued covering scale rate payments have now been revoked. New guidance from HMRC states:
“Scale rate payments and the Advisory Benchmark Scale Rates can only be used for expenses made to or provided for any employees by the employer and where agreed as part of a Dispensation: they cannot be used by an employer to arrive at a sum on which tax and NICs “relief” is given each pay day where the expenses are incurred by the employee and not reimbursed by the employer.
HMRC may revoke a Dispensation where it believes that additional tax is payable in respect of payments or benefits. Alternatively HMRC could seek to take action to collect additional tax and NICs without disturbing the Dispensation. This is because the administration of tax “relief” in this way is not sanctioned by the protection of the Dispensation. NICs “relief” is not available unless separate and distinct payments of expenses have been made”.
Umbrella companies who still operate scale rate payments should ensure that the processes they have in place would satisfy HMRC in the event of an investigation. They must not assume that the payments are applicable to all employees.
LEGISLATION UPDATE: Please note Legislation changes may restrict contractors claiming Travel & Subsistence expenses unless they can prove that they are not under the Supervision, Direction and Control (or the right thereof) of the end client.
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