If you are one of the many transport operators who pays drivers overnight subsistence (“night-out” allowance) you may also be one of the many who is inadvertently avoiding compliance with rules relating to the taxation of such payments.
There are three ways in which companies operate these payments. Firstly, reimbursing payment for receipted allowances, which is unchanged.
The second and third options relate to non-receipted expenses and this is where changes came into effect from April 2017. The rates for allowances have not changed but the procedures for implementing the systems into your accounting and payroll must be adopted if you wish to continue paying your drivers in this way.
The most common non-receipted payment method is the payment of the Industry Scale Rate for overnight subsistence:
Sleeper Cab vehicles £26.20
Non-Sleeper Cab Vehicles £34.90
The important thing to remember is that these payments were never intended as a bonus payment or a perk for doing a less sociable time shift. This would need to be taxed as an income. This payment can only be awarded where the company is satisfied that the driver had incurred tangible out of pocket expenses equal to the amount awarded.
For companies wishing to pay this rate to drivers, they must make an application to HMRC for an Approval Notice. They must also confirm to HMRC that there is a system in place to check that payments are being made for expenses occurred. The evidence of checks will need to be kept routinely in the event of being requested by HMRC. HMRC have issued a document EIM30275 which outlines a good practice guide.
For those companies wishing to pay an amount over this rate, they must apply for a Bespoke Approval Notice.
The alternative methods of making payment are for ad hoc payments where drivers occasionally and unexpectedly work outside of their normal hours. This is only to be paid in exceptional circumstances and the driver must confirm that they have incurred these costs. Businesses running this type of payment scheme must still keep an adequate checking system.
The maximum rates of payments are:
Breakfast (before 6am) £5
5 hours (one meal) £5
10 hours (two meals) £10
Late evening meal (after 8pm) £15
Whilst the only changes to the system relate to the Approval Notice and Checking Systems, it has long been a misconception that payments can be simply made without justification. As a business making payments, or as a driver in receipt of payments, you may need to spend some time considering what costs are incurred, even if they are one off costs which then can be accounted over several shifts, such as the cost of washing powder, food, utensils, travel mugs, kettle, in cab microwave etc.
HMRC have advised that there will be scrutiny over the use of such payments and a clamp down on perceived tax evasion. If you have any questions as to how the rules apply to you give our expert team a call today on 0115 910 6239.