UK Meal Allowance Rates
The government treats meal allowance rates as a uniform version of a per diem for tax purposes. They are also referred to as “scale rate payments” (HMRC) and “subsistence expenses.”
No matter how employees or managers describe them, subsistence expenses refer to the inexpensive costs employees incur when they are out of the office for work. These include:
- Food and drink
- Congestion charges
- Parking charges
- Phone calls (business-related)
- Tolls
The main requirements for employees to claim meal expenses are:
- The employee must purchase the meal (food and drink) after starting the business trip if they wish to submit the receipt for reimbursement.
- The trip must be outside of the employee's regular commute. The trip must be for business purposes.
- The trip must take the employee away from their usual workplace for a minimum of five hours.
The idea behind meal allowance rates works like this: If employees are on the road regularly, it makes more sense to set a standard amount for food and accommodation while travelling. Otherwise, employees will have to calculate their travel expenses for each trip when they return.
Importance of Standard Meal Allowance Rates
Business expenses are not taxable in the UK. They are also not subject to National Insurance fees. Employers who demonstrate that they spent money on specific business-related costs can reap these benefits during tax season.
Travel costs are usually business expenses unless employees use their cars, and companies must track them closely.
When Standard Meal Allowance Rates Apply
Standard meal allowance rates apply when all the following conditions are met:
- The employee must travel for their usual duties or a temporary place of work.
- Employees are away from their typical workplace or home for more than five or 10 hours. This time must be continuous.
- The employee should have incurred the cost of a meal (food and drink) after starting their journey.
Two Classifications of Meal Allowance Rates
Companies have a couple of options if they wish to give their employees tax-free per diems.
1. A Custom Scale Rate from HMRC
A custom scale rate is the preferred option for businesses where employees travel regularly. To get custom rates, you need to show that your employees typically have higher travel expenses. HMRC requires proof to support your claim. Be prepared to back it up with receipts.
HMRC will decide whether to allow your business to have higher rates for employee travel expenses.
2. Scale Rates for Meal Allowances
Meal allowance rates within the UK are as follows:
- 5 hours GBP 5
- 10 hours GBP 10
- 15 hours GBP 25
HMRC provides standardised rates for locations worldwide. These rates reflect that countries vary in terms of the cost of food and drink.
Spending Over the Meal Allowance Rates
Employees can spend up to the stated scale rates tax-free. If they spend over the displayed meal allowance rates, the amount over the scale rate is taxable. There is also National Insurance payable on the difference.
Rule Change Regarding Expenses in 2019
Before 2019, HMRC required businesses to submit receipts for each expense. Companies were required to examine all receipts to confirm they were legitimate.
In April 2019, HMRC lifted the requirement for businesses to submit receipts. Employees only need to confirm they were away on business when they incurred the expenses. If an employee is away from the workplace on business and consumes three meals in one day, they only have to provide a receipt for one of the meals.
This requirement doesn't take into account if your business uses custom allowance rates.
The requirement isn’t applicable if you are following standard industry rates for expenses.
UK Overnight Accommodation Rates
The UK government has not set any benchmark rates for overnight accommodation expenses. For companies where employees are required to stay away overnight on business frequently, the best policy is to establish an agreed rate with HMRC.
How to Report Subsistence Allowance Spent
At the end of the tax year, each business submits a P11D form to HMRC.
All employees who submitted business expenses or a per diem meal allowance must submit a P11D form. HMRC allows a broad definition for subsistence expenses. Employers must be vigilant about false claims, inflated costs, and other types of expense fraud.
What is a Meal Expense Report?
An expense report is a document completed by an employee, a manager, or another individual to get reimbursed for personal expenses paid while performing their work. Employees can use the expense report to submit all their eligible work expenses from business trips.
No formal template is used for drafting a restaurant expense report for employees. Each company can choose the type of form that best serves its needs. The document needs to include specific information the finance department requires to process it, including:
- The name and job title of the employee
- The date and time of the meal
- The name of the restaurant where the meal was consumed
- The details of the meal
- The total amount of the bill, including taxes
- The amount of VAT (value-added tax)
If the employee ate alone, they could simply attach a copy of the receipt to the expense report. If other people were present, the employee should note their names on the form (whether they are fellow employees, suppliers, customers, prospective customers, or business partners). A receipt should still be provided in this case.
How to Recover VAT on a Meal Expense Report
Travelling employees who submit a completed meal expense report should receive a full refund from their employer for the money they have paid out, including VAT. The company can recover the amount paid for VAT by deducting it from the tax paid to the government. This deduction is allowable in the following circumstances:
- The restaurant or the meal delivery service invoice indicates that it charged VAT. This charge must be shown in addition to any other taxes.
- The restaurant owner is responsible for paying VAT to the government. A restaurant owner who is a small business owner exempt from VAT can't adjust the receipt in favour of the employee.
The VAT rate may vary depending on the type of meal the employee consumed.
- Meals consumed at the table in a classic restaurant setting are taxed at a reduced VAT rate of 10%.
- Takeaway meals are taxed at the lower VAT rate of 5.5%
- If the employee and any guests consume alcoholic beverages, the drinks are taxed at the standard rate of 20%.
The restaurant bill is proof of the amount spent on food and drink. It must include a breakdown of the amount charged for food, non-alcoholic and alcoholic beverages. These categories will make managing meal expense reports easier for the company finance department. Each business will have its policy around whether it will or will not reimburse alcoholic beverages on an employee expense report.
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