UK per diem travel expenses: everything you need to know

Finance Professional calculating per diem

Normal expenses, per diem, scale rate payment or round sum allowance? In this article, we take a look at your options for managing employee travel expenses.

Employees inevitably incur costs when they’re travelling for business — costs they shouldn’t be expected to pay, particularly when a trip involves significant travel or accommodations.

But handling employee expense reimbursements can be challenging.

Most businesses begin by treating travel expenses the same as any other employee expense: employees collect receipts while travelling and submit them with an expense form once the trip has concluded.

It’s a fairly straightforward system, but it’s time consuming and involves a lot of paperwork — for both the travelling employee and the team processing expense claims back at base. Employees who lose receipts may be out of pocket, and if you have a number of employees making regular business trips, the paperwork can really mount up over time. If you’re keen to simplify the process, a “per diem” allowance can help.

Employee out to dinner

What is a per diem allowance?

Per diem literally translates as by the day.

It’s a daily amount you allocate for your travelling employees to spend on incidentals — like food and drink — when they’re away from the office.

In the UK, the per diem allowance is often referred to as a scale rate payment. This is how you’ll see them listed in all HMRC documentation.

So why would you choose a scale rate payment over normal expenses? Let’s take a look.

What are the benefits of per diem (or scale rate) allowance?

For the employer, a per diem allowance:

  • Reduces expense volatility and facilitates planning for a business trip — you know exactly what each employee is going to spend per day.
  • Decreases the administrative burden — because you don’t need to report expenses in the same way.
  • Is tax deductible — so you don’t have to pay tax and NICs (unlike normal expenses, and as long as you stick to the limits outlined below).

For the employee, a per diem allowance:

  • Offers flexibility — employees are trusted to spend their per diem how they wish.
  • Offers clarity — because the per diem is a fixed rate, employees are clear on exactly how much money is being provided and what it is for.
  • Decreases the administrative burden — because they don’t need to keep receipts or file expense claims for scale rate payments within HMRC guidelines.
  • Makes finances simpler — employees don’t have to wait for reimbursement or forfeit costs with lost receipts, so they’re never left out of pocket.

How do you determine your business’s per diem allowance?

Standard per diem limits

The easiest way to determine a per diem limit is to stick to the scale rates payment guidelines issued by HMRC. These guidelines stipulate how much spending money you can give to employees per day, without being taxed on them

Bespoke per diem limits

If you want to go beyond the stated per diem limit, you should negotiate a bespoke scale rate payment with HMRC. You’ll need to explain that your employees tend to spend more than the established guideline rate and provide documentation to prove it. If your per diem limit is approved, you won’t have to pay additional taxes on your unique rate — however, you will have to conform to the HMRC’s requirements for random sampling of expense receipts.

Tax on per diem rates that go beyond the limits

Any scale rate payments over the HMRC-stipulated standard or HMRC-approved bespoke amounts will have to be included in your accounts, and you’ll pay tax and NIC contributions on them.

Per diems for international travel

All of the above relates to business travel within the UK. If your team are heading overseas on a business trip, there are other HMRC guidelines and per diem spending limits to follow.

European per diem in business travel

What are the current scale rate payments allowances for travel in the UK?

The scale rate payment (aka per diem) allowances are set by HMRC. As of November 2022, those allowances are as follows:

  • £5 for qualifying travel of 5 hours or more
  • £10 for qualifying travel of 10 hours or more
  • £25 for qualifying travel of 15 hours or more and where the travel is ongoing after 8 pm
  • You can pay an additional £10 per day if an employee is travelling for five or ten hours or more, and they’re still travelling at 8 pm.

To qualify for these rates, travel must meet the following criteria:

  • The travel must be in the performance of an employee’s duties or to a temporary workplace.
  • The employee should be absent from their normal workplace or home for a continuous period of over 5 or 10 hours.
  • The employee should have incurred a meal cost (food and drink) after starting the journey.

These rates are relevant to a day away from the office, returning home the same day.

Scale rate payment allowances for overnight travel

If you want to include the costs of an overnight stay in a per diem, you need to agree this rate directly with HMRC, according to their bespoke rate process.

The same goes if you feel that these standard scale rate payment allowances don’t meet the needs of your employees.

You can find the most up to date scale rate payment rates from HMRC on gov.uk.

Are there drawbacks to having a per diem allowance?

There are lots of benefits associated with scale rate payments, so you may be asking: what are the downsides of this approach to employee travel expenses?

You may find that:

  • You don’t like that you can’t see or control what employees spend their scale rate payment on. They may spend it on a sandwich and a coffee, or they might blow that company money in the pub.
  • Employees sometimes treat a per diem as their money, so they may look for cheaper alternatives and pocket the difference.
  • Employees may not feel they have the flexibility to go beyond the per diem budget for the benefit of your business — for example, if they want to splash out on dinner for a fancy client. Exceeding their established scale rate payment will result in extra taxes for your business.

As a result, employees may end up spending their own money if the scale rate payment isn’t enough.

Are there any alternatives to the per diem allowance in the UK?

If neither normal expenses nor scale rate payments suit your business, you can opt to pay travelling employees a round sum allowance.

What is the round sum allowance?

If an employee regularly travels for work, you can choose to top up their salary with a regular monthly payment. This payment is effectively extra income but made with the understanding that it is used for travel expenses. However, an employee can spend it on whatever they wish.

HMRC views the round sum allowance as employee income, so employees will pay tax on it in exactly the same way they pay tax on their salary. But you won’t need to keep receipts for this allowance, as the employee doesn’t ever claim any expenses from the company.

In summary

When deciding how to pay your employee travel expenses, you can choose between normal expenses, a per diem or scale rate payment, and a round sum allowance.

The travel expenses model you choose will depend upon a number of different factors:

How much paperwork you’re prepared to do

How much oversight you want to maintain with regards to expense spending

How much you value your employees’ experience

How often your team is travelling for business

If your team is regularly hitting the road on behalf of your company, it’s definitely worth picking a business expense model that makes life easier for your employees and cuts down on unnecessary paperwork.

Want more great business travel resources? Head to the Hotel Engine blog for the latest tips and insights.