The Tax Advantages of Fixed Expenses Payments

Reimbursing expenses to your employees the cost of their business travel etc. is tax and NI free. But is there a possibility of paying a fixed-rate allowance instead to make them better off.

Employees usually expect you to reimburse them the cost of any expenses they’ve paid on behalf of the business. As long as these are incurred as part of their job, whatever you pay them will be tax and NI-free. But the procedure can be very tedious as employees have to obtain receipts for all expenses, even the cost of something very little. Once these receipts are submitted to the accounts department, there will be another process to declare everything to HMRC at the end of the tax year.

In the perspective of employees, they can ask HMRC for a PAYE dispensation, which means that at least you don’t have to report the payments on Form P11D. But you’ll still have to check each and every expenses claim

Lump sum payments

As an employer, if you know roughly how much your employees spend on a business trip you can avoid this procedure by paying them a round lump sum allowance. But the problem is that HMRC doesn’t like this. Lump sum allowances count as additional pay and are subject to PAYE tax and NI. While your employee can claim a tax deduction for their actual business expenses to counter the tax charge, you and they will still be liable to pay NI. However, as an employer, you won’t have to worry about processing expense claims but your employees will still need to keep receipts to justify their claim for a tax deduction.

Scale rate payments

You’ll need agreement from HMRC before you can put a system of scale rate payments into operation. Essentially, you’ll have to show they are “intended” to do no more than meet your employees’ business expenses. Although a scale rate payment can be tax and NI-free, this doesn’t mean you’ll escape reporting it on Form P11D.

For advice on payroll, PAYE tax and other tax related matters, it is advisable to get in touch with experienced professionals. KVS Accountants are experienced in dealing with these types of tax related issues for clients across the South West London region. KVS accountants serve Clapham, Clapham South, Clapham Common, Balham, Notting Hill, Tooting



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