Requirement to check subsistence evidence abolished from April 2019

Following the publication of the draft provisions for Finance Bill 2018-19 and explanatory notes on 6th July, Government published a range of policy papers and draft legislation.

One of the key provisions is that, where an employer is using HMRC’s approved meal allowance rates, they will no longer be required to check evidence of employees’ subsistence expenditure providing that the employer is satisfied that the employee has undertaken qualifying business travel.

This will remove the requirement for a retrospective audit where employees were asked to provide receipts or contemporaneous notes to support their subsistence claims and will mean that, provided the employer is able to check that an employee travelled to a qualifying workplace, subsistence expenses based on the approved meal allowance rates can be paid without deduction for tax and no additional checking regime will be required. 

Appropriate checks will still be required in regard to the payment of any other expenses and so, employers would still need to be able to confirm that an expense had been incurred for payment of actual subsistence amounts, public transport costs, clothing, tools etc, usually by seeing a receipt or other proof of purchase, prior to payment. 

In addition to this change, it was also announced that overseas scale rates would be placed on a statutory basis in the hope that it will provide greater certainty for employers.

Abolition of receipt checking for benchmark scale rates (“BSR”)

It was first announced at Autumn Budget 2017 that following the call for evidence: taxation of employee expenses, the employer would no longer need to check evidence of incurring an expense when paying BSR. The policy paper, “Abolition of receipt checking for benchmark scale rates and changes to overseas scale rates” clarifies that by BSR, Government is actually referring to HMRC’s approved meal allowances. The current meal allowances, detailed in Income Tax (Approved Expenses) Regulations 2015, are;

The draft legislation proposes an amendment to section 289A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). The current legislation for National Insurance Contributions (“NICs”) is contained at paragraph 8A of Part 8 to Schedule 3 of the Social Security (Contributions) Regulations 2001 and allows any amount which is exempted from income tax under 289A ITEPA to be disregarded when calculating earnings for Class 1 NICs purposes.

Changes to Overseas Scale Rates (“OSR”)

The policy paper and draft legislation also includes amendments to the OSR which are published in HMRC guidance and allow employers to reimburse (accommodation and subsistence costs) their employees who travel abroad on business without deducting tax or NICs or reporting to HMRC. The costs depend on the country and city the employee is visiting and the length of time they are staying.

OSR is not currently in legislation.

Proposed legislative revision

The Finance Bill 2018-19 will include amendments to section 289A ITEPA by inserting several new subsections which will entail the changes to checking requirements for employers who use OSR. The new sections will only stipulate that employers must ensure that employees have undertaken qualifying travel. The draft amendments are;

(2) After subsection (2) insert—

“(2A) No liability to income tax arises in respect of an amount paid or reimbursed by a person (“the payer”) to an employee (whether or not an employee of the payer) for expenses in the course of qualifying travel if—

(a) the amount has been calculated and paid or reimbursed in accordance with regulations made by the Commissioners for Her Majesty’s Revenue and Customs,

(b) the payment or reimbursement is not provided pursuant to relevant salary sacrifice arrangements, and

(c) condition C is met.”

(3) After subsection (4) insert—

“(4A) Condition C is that—

(a) the payer or another person operates a system for checking that the employee has undertaken the qualifying travel in relation to which the amount is paid or reimbursed, and

(b) neither the payer nor any other person operating the system knows or suspects, or could reasonably be expected to know or suspect, that the travel was not undertaken.”

The OSR will also be brought into legislation. Similar to BSR, employers will not need to check employee’s expenditure by way of a receipt but will need to ensure that the employee has undertaken qualifying travel.

The changes will have effect from 6 April 2019.

Aspire Comment

The announcement is an easement from the current checking regime which requires proof of the expense having been incurred and is thought to have no economic impact on the exchequer.

We anticipate that this will be welcomed by any employer who pays subsistence expenses to their employees using the approved meal allowances.  The abolition of the audit requirement in regard to payment of these expenses should reduce the administrative burden and so, lead to some cost savings.  This is a rare contradiction to the usual imposition of more legislative burden and so, potentially worthy of some celebration on 6 April 2019!

If you would like to discuss any measures announced in the draft Finance Bill 2018-19, please get in touch with Aspire.