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Topic: Employee benefits and expenses

employee scale rate clearance letter
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Employee scale rate clearance letter

Employee scale rate clearance letter

Where you have a number of directors or employees who travel frequently, you can reduce the administration involved in processing their expense claims by giving them a flat rate allowance to cover items such as lunch and dinner. However, to avoid having to deduct tax on the amounts paid, you’ll need to agree these so-called scale rate payments with HMRC.

scale rate payments

If you provide directors and employees with a round sum allowance for some common business expenses like hotels and meals, these are known as scale rate payments.

As long as the directors and employees are actually spending the round sum payments on business expenses, you can ask HMRC to agree the scale rates using our Employee Scale Rate Clearance Letter.

HMRC will agree as long as it is satisfied that the calculation of your scale rate is based on genuine expenses incurred in the past and there is no profit element in it for the employee. You will need evidence (e.g. receipts) that supports the scale rate that you want to use. As it may be impractical for you to obtain evidence of expenditure for every employee, HMRC will accept a random sample of at least 10% of your employees for a period of one month (see HMRC’s Employment Income Manual EIM05210).

HMRC’s Benchmark rates

Alternatively, to avoid carrying out the time-consuming sampling exercise, you could use HMRC’s benchmark scale rates which are:

Breakfast rate (irregular early starters only) - up to £5, where the employee leaves home earlier than usual and before 6.00am and incurs a cost for breakfast taken away from home. However, if the employee regularly leaves home before 6.00am because of, for example, working an early shift, they can’t claim the allowance tax free.

One-meal rate (five-hour rate) - up to £5, where the employee has been away from home or the normal place of work for a period of at least five hours and has incurred the cost of a meal.

Two-meal rate (ten-hour rate) - up to £10, where the employee has been away from home or the normal place of work for a period of at least ten hours and has incurred the cost of a meal or meals.

Late evening meal rate (irregular late finishers only) - up to £15, where the employee has to work later than usual, finishes work after 8.00pm having worked the normal day and has to buy a meal which would usually have been taken at home. If an allowance under the five or ten-hour rule is paid, the late meal allowance may also be paid.

These are national rates, so if they’re not enough, you’re still entitled to negotiate a scale rate.

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