Per Diems for Dummies – United Kingdom
It may be that “not all those who wander are lost” according to Bilbo Baggins but with the plethora of rules and regulations currently governing per diems, reimbursements, scale rate payments, and round sum allowances in the U.K, it’s very easy to go astray when you travel on business. But have no fear. In this amuse-bouche, we’ll provide a heads-up to make sure you run into no nasty surprises that may distract or upset and interfere with your ability to focus on business.
- 1. Per Diem 101
- 2. Scale Rate Payments
- 3. Traditional Expense Reporting and Round Sum Allowances
- 4. UK Government Domestic & Overseas Scale Rates
- 5. Finance Act 2019
- 6. Bon Voyage with Rydoo
Per Diem 101
Despite their designation, per diems are not just for trips to Rome, although they did make their first appearance in that ancient city during the principate of Nerva (96-98 CE). The first of the ‘five good emperors’, Nerva instituted a series of welfare programmes that paid special attention to orphans. A boy might receive ‘2.5 assēs per diem’, while a girl got ‘2 assēs per diem’, at a time when a one-pound loaf of bread cost 2 assēs. The as was a copper coin that weighed about 11 grams. Today, per diems are less about social welfare and more about its corporate cousin. A per diem (Latin for ‘per day’) is a fixed amount paid by a corporate entity to a staff member to cover or recover ‘business expenses’. In the U.K., they have been rechristened ‘scale rate payments’ by HM Revenue and Customs (HMRC), Britain’s taxing authority.
Scale Rate Payments
Typically, per diems or scale rate payments are used to pay or reimburse travel, meal and accommodation expenses; how they are employed varies from company to company. In one organization, scale rate payments may be paid to cover just meals and accommodation, while in another, they may be disbursed to cover travel and all associated expenses, such as meals and accommodation.
Per diems or scale rate payments are an attractive proposition for both employer and employee. Their fixed nature reduces expense volatility and makes planning a tad easier. To budget for scale rate payments, it will still be necessary to estimate how many employees will be travelling for how many days. But once those parameters have been decided, computing a cost follows from simple arithmetic. In addition, scale rate payments reduce paperwork, since they obviate the need for a traveler to retain receipts and to compile and submit expense reports. The employer also benefits from the diminished administrative burden because there is no need to review and approval reimbursements.
Scale rate payments should enhance employee satisfaction by increasing choice. Moreover, the employee who can decide where to take his meals or to seek lodging will, most likely, experience a greater sense of autonomy than one who is constrained by company policy. Giving employees the freedom to make decisions that affect them so personally clothes an organization with a persona of flexibility and humanity. And scale rate payments may encourage prudence, since their fixed amount provides a psychological boundary.
However, what’s gained on the swings may be lost on the roundabouts. Prudence is undoubtedly a good thing but there can be too much of a good thing. There’s the distinct possibility that scale rate payments can be viewed as personal income. If that is the case, there will be a natural tendency to cut corners, reduce expenditure as much as possible and pocket any balance.Additionally, if the scale rate payments or per diem is considered ‘your money’, there is less constraint on spending it, say, on a night out on the town. Conversely, one may be inclined to take a client to the cheaper joint, just to save money. These opportunities for undesirable behavior and adverse outcomes may outweigh the advantages of having a simpler system, which is why many organizations stay with traditional, cost-based reimbursement policies and procedures.
Traditional Expense Reporting and Round Sum Allowances
Traditional expense reporting can be a trying experience for employees. For employers, it can be a lose-lose situation. On the one hand, implementing such a system requires a level of supervisory control to verify and approve expenses. On the other hand, the costs of monitoring might well exceed the costs incurred from abuses.
Under traditional tracking systems, the employee must remain vigilant in recording any payment or billing that qualifies as a business expense. Such receipts are then typically collected and organized into an ‘expense report’, which is submitted to management. Upon approval, the approved expense report will typically make its way to the accounting department, which initiatives and issues reimbursement to the staff member. As will be obvious, this parade of procedures can take some time, and it does. A recent survey discovered that just 39 percent of reimbursements were made within a week or less. About 21 percent took 1-2 weeks; 18 percent took 2-3 weeks; and 22 percent took 4 weeks or longer. With around 60 percent of employees having to wait a week or longer to get their money back, there may be compelling reasons to consider making advance payments.
However, advance payments are not all the same. Some bear a badge of approval from HMRC and are titled ‘scale rate payments’. Others do not and are simply ‘round sum allowances’. A ‘round sum allowance’ is an amount paid to an employee, who then has complete discretion on how it is spent. Such a stipend counts as earnings, which means it is subject to PAYE tax and NIS. But amounts paid to an employee for travel and meals and associated expenses may qualify as ‘scale rate payments’. Scale rate payments are amounts agreed with HMRC or payments made in accordance with the HMRC benchmark scale rates.
The current HMRC benchmark subsistence rates for the UK are:
- a) £5 for qualifying travel of 5 hours or more
- b) £10 for qualifying travel of 10 hours or more;
- c) £25 for qualifying travel of 15 hours or more and where the travel is ongoing after 8pm.
An additional meal allowance of up to £10 per day may be paid if an allowance under a) or b). is paid and travel is ongoing at 8pm. Any payments over and above these amounts are subject to tax and National Insurance.
UK Government Domestic & Overseas Scale Rates
These domestic rates are set out in the table below:
For travel abroad, HMRC’s Worldwide Subsistence rates will apply. Here is a sample of overseas scale rates, for cities frequently visited by Britons on business.
United Arab Emirates
United States of America
The total residual rate in the tables above is the sum of all the other rates, excluding the room rate.
Finance Act 2019
The Finance Act 2019, s 10 includes provisions that has allowed employers, since April 6, 2019, to pay certain subsistence expenses without the need for the employee to provide receipts or bills, provided they use the HMRC benchmark subsistence scale rates. This reduces the reporting burden for both employer and employee. However, a degree of oversight remains. Organizations must institute proper internal controls to ensure that scale rate payments are made only for business related travel. A qualifying business journey is one done by an employee to perform his or her duties but does not include travel to and from home. However, travel to a temporary place of work is qualifying business travel. These changes do not apply to organizations that use rates negotiated with HMRC or industry-wide scale rates. For such organizations, a regime for verifying and checking receipts must remain in place.
Bon Voyage with Rydoo
It’s been said that the journey is just as important as the destination. For business travelers, it should also be smooth, devoid of irritations that arise when one bumps up against procedures and policies. Maybe Rydoo can smooth your journey through the bureaucratic maze.
Together with our partner Deloitte, we’ve worked hard to incorporate a host of features for our British customers, making sure we offer a solution that addresses domestic needs. Benchmark or own scale rate payments can be uploaded in the app for instance. Travelers need only enter their trip details in the Rydoo app via their smartphone and the information is automatically computed based on your company policy. The traveler can then submit all his eligible scale rate payments for approval with one simple tap.
Rydoo also makes sure everything is in perfect compliance with English law. For example, when a meal has been entered on the same day as a scale rate payment, a warning will be sent to users and controllers. This means that all expenditures are categorized correctly, leaving little room for error or abuse. The Rydoo platform provides real-time expense management for the entire company. Employees on the road can easily upload their receipts through the app, while managers are able to approve or decline them just as quickly. Rydoo also offers a travel solution that can be integrated with the expense management platform. With Rydoo’s travel app, the business traveler can book flights and accommodation and much more. Let Rydoo make your trip easier. Get started with your free trial account.