Meal allowances briefing note

Background

The position over meal allowances paid to lorry drivers is changing. HMRC historically gave
a dispensation that allowed employers to pay their workers an allowance of £2 per day
without any evidence of costs incurred. Historically an allowance in excess of £2 per day
could be paid if HMRC approval had been obtained. To get an agreement to pay in excess
of the £2 the employer had to have proper steps to be satisfied that the expenditure of the
relevant amount was actually incurred by the respective employee.

HMRC published advice in April 2009 which suggests the following can be paid free of
income tax/National Insurance:

Description Amount (up to)

Breakfast rate £5
One meal (5 hour) rate £5
Two meal (10 hour) rate £10
Late evening meal rate £15

Breakfast rate - The rate may be paid where an employee leaves home earlier than usual
and before 6.00 am and incurs a cost on breakfast taken away from his home after the
qualifying journey has started. If an employee usually leaves before 6.00 am the breakfast
rate does not apply.

Late evening meal rate - The rate may be paid where the employee has to work later than
usual, finishes work after 8.00 pm having worked his normal day and has to buy a meal
before the qualifying journey ends which he would usually have at home.

The breakfast and late evening meal rates are for use in exceptional circumstances only and
are not intended for employees with regular early or late work patterns (see examples at
EIM05232). http://www.hmrc.gov.uk/manuals/eimanual/EIM05232.htm

One meal (5 hour) rate - The rate may be paid where the employee has been undertaking
qualifying travel for a period of at least 5 hours and has incurred the cost of a meal.

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Two meal (10 hour) rate - The rate may be paid where the employee has been undertaking
qualifying travel for a period of at least 10 hours and has incurred the cost of a meal or
meals.

Benchmark scale rate payments must be limited to three meal rates on one day or 24 hour
period. A meal is defined as a combination of food and drink and would take a normal
dictionary meaning. Where employees are required to start early or finish late on a regular
basis, the over 5 hour and 10 hour rate, whichever is applicable, can be paid provided that
all the other qualifying rules are satisfied.

Rules post April 2016

Expenses paid or reimbursed and benefits provided, which would be fully deductible from an
employee’s earnings from that employment are exempt from charge to income tax or NICs
from 6 April 2016 provided the payment or reimbursement is not provided through a relevant
salary sacrifice arrangement.

Where expenses are paid or reimbursed either in accordance with The Income Tax
(Approved Expenses) Regulations 2016 , or at a rate agreed under an approval notice, and
are not provided through a relevant salary sacrifice arrangement, the exemption will only
apply if conditions A & B are met.

Condition A is that the payer, or another person, operates a checking system for checking
that the employees are in fact incurring and paying amounts in respect of expenses of the
same kind and that a fully matching deduction would be allowed under Chapters 2 or 5 of
Part 5 ITEPA in respect of those amounts.

Condition B is that neither the payer nor any other person operating the checking system
knows or suspects, or could reasonably be expected to know or suspect that the employee
had not incurred an amount in respect of the expense, or that a deduction under Chapters 2
or 5 of Part 5 ITEPA would not be allowed in respect of those amounts.

Approved way

An expense is paid in an approved way if it is either calculated and paid or reimbursed in

accordance with the regulations on benchmark rates, or it is calculated and paid or
reimbursed in accordance with an approval notice given under section 289B ITEPA 2003.

Checking systems

Employers must also have a system in place for checking that payments to employees are
only made on occasions where the employee would be entitled to a deduction from earnings
in respect of that payment and had incurred an amount in respect of expenses on that
occasion.

The introduction of legislation requiring an employer to have a checking system formalises

the previous guidance.

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Employers who pay any non-allowable expenses or provide non-exempt benefits will still
need to put those through the payroll and deduct tax and NICs, or put them on form P11D in
accordance with existing practice.

Expenses or benefits that are only partially exempted will need to be put through the payroll
in full and employees will need to claim a deduction from HMRC on the exempt part.

HMRC accept that it will be impractical for some employers to obtain evidence of
expenditure incurred by every one of their mobile employees. Where that is the case, we will
accept evidence in the form of a sampling exercise based on the expenses incurred

• by a random sample
• of 10% of the eligible employees
• for a period of one month.

Employers will have to be able to satisfy HMRC that their 10% sample really is a random
one - for example, every 10th name from an alphabetical list of the employees concerned.
HMRC will generally seek to accept the evidence produced by such a random sampling
exercise as the basis for agreeing the amount of the employer’s scale rate subsistence
payment.

Where it is not possible for employees to obtain receipts for all expenses incurred during the
sampling period, the employer should consider seeking contemporaneous notes of the
expense and consider whether the amounts detailed in such notes are reasonable and
representative prior to including them in their sample.

Checking system

Employers must also have a checking system in place for ensuring that payments or
reimbursements are only made on occasions where the employee would be entitled to a
deduction from their earnings and has incurred and paid an amount in respect of expenses.

When considering applications HMRC will need to be satisfied that the proposed scale rate
payments are set at a level which broadly represents the amount that employees are
actually spending on allowable subsistence expenses. Employers should therefore be
prepared to provide evidence of the amount that their employees are spending. This
evidence should ideally be in the form of receipts but other evidence, such as an employee’s
contemporaneous record of expenses incurred, should also be considered.

Where HMRC are satisfied that the amount applied for is a reasonable estimate of the costs
actually incurred by employees you can issue an approval notice setting out the rate at
which expenses may be paid or reimbursed, the date from which the approval is granted and
the type of expenses covered. The date from which approval is granted must not be earlier
than the date of the approval notice.

Approval notices will cease to have effect from a date no later than the end of a period of 5
years beginning with the date on which the approval takes effect.

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Recommended approach

The RHA is looking to meet with HMRC to agree the basis going forward for
members. In view of the lack of a formal industry agreed position we would recommend
that members who wish to pay an allowance over and above the £2 per day previously
agreed should approach their PAYE inspector for an approval notice to agree that the
amount proposed to be paid in regard to meal allowance can be paid gross.