EIM66210 | Tax treatment of lorry drivers: employer guidance: scale rate payments to drivers: frequently asked questions

From HM Revenue & Customs · Employment Income Manual

As an employer, you can either reimburse your drivers for their actual travel costs incurred when staying away from home or a set rate, for example benchmark scale rates for meal allowances or a lorry driver’s overnight subsistence allowance.

Whether you are reimbursing actual costs or paying a set rate, your employee must have actually incurred a qualifying expense during their journey.

General guidance for employers

Q1. How do I apply for an approval notice?

To apply for an approval notice, you can complete bespoke scale rate application form.

Q2. What information will I need to include in the approval notice if I want to pay the agreed industry scale rate?

To apply for an approval notice, you will need to:

advise HMRC that you intend paying the agreed overnight rate to drivers who stay away from their home or normal place of work overnight in the UK
confirm that you have a checking system in place to ensure that payments are only made on occasions when the employee was away from home overnight and incurred qualifying expenses after staring their journey

Q3. If a driver starts their period of continuous travelling and buys all their food for that period once they have started the qualifying journey; would their receipts or other evidence be allowable for checking against the industry scale rate without deducting Income Tax and National Insurance contributions?

Yes - as long as the expenditure is incurred after the qualifying journey has started.

Q4. How often do I have to apply for approval notices?

The approval notice is valid for a period of up to 5 years unless you alter or cease the checking systems for payments agreed within your approval notice, or the nature of the scale rate expenses you pay changes. HMRC can revoke an approval notice where it finds evidence that the conditions are not being followed, or if the information provided as part of the application is not accurate.

Q5. How much can I pay under the industry-wide scale rate system?

There are 2 rates for overnight subsistence in the UK for hauliers. If your employee stays in their sleeper cab, they can claim up to £26.20 per night. If your employee does not have a sleeper cab, they can claim up to £34.90 per night. The allowance covers the cost of food and other costs such as, the upkeep of the cab. As long as you have a valid approval notice and checking system in place, you do not have to deduct Income Tax and National Insurance contributions (NICs) from these payments.

Q6. What if I can’t operate a checking system because it would take up too much of my time?

Where this is the case, if you reimburse your employee’s expenses you must do so through the PAYE system, deducting tax and NICs. Where tax relief is due on these expenses, employees can claim tax relief on their travel expenses directly from HMRC.

Employees can claim tax relief on travel and subsistence expenses incurred while working in some circumstances. If you, as an employer, do not reimburse or pay the sleeper cab allowance rate of £26.20 (or £34.90 if the lorry doesn’t have the sleeper cab), or if they incur expenses in excess of the amount reimbursed they can claim tax relief on the amounts they spent from HMRC. In practice, this means that they will only be able to get tax relief on the amount they spent (in most cases only 20%) rather than the full expense incurred. To make a claim online, employees should complete a form P87 or apply via their Personal Tax Account.

If their claim for a financial year period is more than £2,500, they will need to complete a Self Assessment tax return.

Please note that employees cannot claim tax relief on incidental overnight expenses if you, as an employer, do not reimburse these.

From 6 April 2019, employers will no longer be required to operate a system for checking an employee’s expenditure in order to make payments free of tax in relation to expenses paid or reimbursed using benchmark scale rates. Instead, employers will only be required to ensure that employees are undertaking qualifying travel on occasions in respect of which a payment is made or reimbursed and that neither the employer nor any other person knows or suspects or could reasonably be expected to know or suspect, that travel was not undertaken. See EIM30225. A checking system will however still be necessary if subsistence payments are made using bespoke rates or industry-wide scale rates.

Q7. What happens if the drivers do not have receipts?

If you reimburse employees expenses under a scale rate system you must have a checking system in place to show that your employees have actually incurred an allowable expense.

Appropriate evidence, usually receipts, will be routinely expected for the purpose of checking, however occasionally there will be items for which receipts or other documentary evidence may be difficult to get. You will need to check the reasons for a lack of evidence and that there is some expenditure to support these claims.

In circumstances when receipts are not available, for example a meal at a truck stop – a timestamped photo of the meal or other form of digital evidence on a smartphone is acceptable.

Q8. What happens if the driver doesn’t have receipts for the full £26.20 (or £34.90 for drivers without sleeper cab) when selected as part of the checking system?

In agreeing the industry-wide scale rates HMRC accepts that when looking at individual cases the amounts drivers actually spend each night they are away from home in the UK will differ. A proportion of the scale rate payment is also designed to cover the cost of laundry of their bedding and personal washing that it may be difficult to get contemporaneous evidence for. HMRC expects employers to confirm that employees are incurring subsistence costs on meals, but it does not expect that drivers will always have receipts covering the full amount of £26.20 (or £34.90 for drivers who don’t use sleeper cabs).

Q9. Can you tell me how many employees I should check?

There are different models of checking systems which will vary depending on the size of the employer or nature or number of the trips employees are required to make. HMRC guidance provides some examples for employers, but accepts that these may not be appropriate in every case. When applying for an approval notice, you must detail a system that checks a representative number of both your employees and journeys undertaken. This is to ensure the processes are working, you are only paying these rates on qualifying occasions and the amount paid reasonably reflects the costs incurred by your employees.

Employers must keep evidence that they have undertaken the checks agreed when their approval notice was issued and that payments are only made on qualifying occasions and that costs are incurred.

Q10. My business is international and I have drivers travelling outside the UK. How much can I pay them for their overnight subsistence?

When your employees travel outside the UK for work and are required to stay away from home overnight as a result, you can either reimburse their actual subsistence costs or pay them using the HMRC overseas rates. If you use these rates, you will not need to seek evidence of the amount they have spent or undertake any additional checks as long as you are satisfied that they have been away from the UK for work purposes.

Q11. How long do drivers need to keep evidence of their expenditure?

HMRC does not set the time limit - you will need to decide how long your employees should keep receipts or other evidence of a qualifying expense for, as it depends on your company’s checking system. For example, if you have a quarterly checking procedure once the quarterly date has passed, and your checks have been finalised, your employees would no longer need to keep the receipts or other evidence for that quarter.

You will need to keep appropriate evidence of what checks you have undertaken, depending on the system you have in place. For example, a note in a ledger showing names of randomly selected employees, the occasions when a payment was made during that review period, and the expenditure they have been able to evidence with receipts or other evidence.