What is subsistence allowance? Set a more efficient business travel budget using a per diem allowance. Learn more here!
What is subsistence allowance? And perhaps more importantly, how does it actually work? Travel is an important (and often necessary) way to network, grow your business, and meet clients onsite during projects. But none of this comes without cost.
When travelling for business as an employee or small business owner, you’ll incur daily travel costs including meals and accommodation. In most countries, these business expenses can be claimed on your tax return. This claim is typically referred to as a “subsistence allowance”, with the term “subsistence” referring to the cost of sustaining employees during travel.
So, how does this all work in practice? We’ll break down what’s covered – and what isn’t – under the category of subsistence allowance in the US, UK, and Europe.
A subsistence allowance is a term used to describe the money used to cover business travel expenses, otherwise known as subsistence expenses. What are subsistence expenses? During necessary business trips, each employee receives a daily subsistence allowance to cover necessary expenses like accommodation, food and drinks, and incidentals, i.e., car parking charges.
The average price of these necessities will vary widely depending on where and when the employee is travelling. The daily subsistence allowance in the UK, for example, is likely to be higher than the daily allowance in some other places. After all, a hotel in central London will typically cost more than a hotel in Berlin or Madrid. For this reason, subsistence rates or per-diem expenses might change with each itinerary.
These expenses are important to track and claim, especially for self-employed individuals. They’re meant to be written off as tax-free business expenses.
Not all trips qualify. You can claim the subsistence allowance if:
By contrast, you won’t be able to claim subsistence allowance if the meals are provided as part of a conference or training course, or they’re part of your usual duties.
So, that’s how subsistence rates work generally. Now, let’s take a closer look at subsistence allowances in a UK context.
With living costs varying so widely from one city to another, how do you know which subsistence rates apply?
HMRC determines the standard rates, adjusting these each year with the cost of living and current market conditions. While companies can submit bespoke travel costs as expenses, this requires additional approval.
Each type of expense comes with its own set of rules, as determined by HMRC.
Unlike meals, the UK doesn’t have a preset benchmark scale rate for overnight stays within the UK. It does provide guidelines for international journeys. If your business frequently requires overnight stays in the UK, you’ll need to agree upon a bespoke rate with HMRC.
You can set up a daily subsistence allowance, also called a per diem rate or scale rate payment, for any expenses that are commonly incurred. By using HMRC’s standard scale rates, employees can easily claim back all taxes they’ve incurred as part of business spending. The standardised process means that there’s no need for separate authorisation or approval for each expense.
Generally, HMRC recommends this type of set-up for any regular business travel expenses. If your employees are frequent flyers, scale rate payments are probably the easiest way to ensure a fixed amount of cash to cover expenses.
Be sure to check the official HMRC benchmark rates, as they’re frequently updated.
Currently, the official domestic allowance rates within the UK are:
Of course, these day rates for meals are only a suggestion. Companies are welcome to provide a more generous daily UK per diem rate for travellers, but they’ll need to pay tax on the excess when claiming these costs are expenses.
Another option is to work together with HMRC to agree on a bespoke or set scale per diem rate for the UK. To do this, you’ll need to submit receipts showing how much your employees typically spend on meals and other regular travel costs.
Overseas business travel means you need to understand that there are different rates for each country. Fortunately, HMRC has taken all the guesswork out of it for UK-based businesses with a conclusive list of recommended allowance rates, sorted alphabetically by country.
From New York to Miami, the US is a top destination for business travellers. To best manage your travel budget, you’ll need to issue a subsistence allowance that applies to each diverse location. HMRC takes this into account, with suggested rates that vary by city and region. Here are a couple of examples:
Atlanta, Georgia
Chicago, Illinois
Miami, Florida
New York, New York
HMRC lists per diem rates for all European countries, making it easier for business travellers to stick to a budget. All figures below are listed in Euros.
Rome, Italy
Barcelona, Spain
Paris, France
In Tokyo, HMRC rates are (in Japanese Yen)
In Hong Kong, suggested rates are in Hong Kong dollars and include:
HMRC states that if you’re travelling to a country not on this list, you can apply the rates of the closest geographic city.
You’ll find some handy examples of subsistence allowance calculations on the HMRC website, including rates for different countries.
At the end of every trip, employees should submit expense reports to the finance department. These will outline all necessary travel costs, which can be recorded in the company books.
Employees will receive this payment directly from their employer. Then, subsistence costs should be reported to HMRC like any other business expense.
Working in the finance department? Attach a P11D form for each employee to your tax return at the end of the year. You’ll need to do this for any employee you’ve provided with taxable expense or benefits that wouldn’t automatically be payrolled. Deductions will be calculated and applied to the total amount owed to HMRC.
If your company has fewer than 500 employees, you can handle HMRC travel and subsistence rate claims online with PAYE. Larger companies can use compliant payroll software to file subsistence claims.
HMRC no longer requires individual receipts for every cost if you’re claiming a fixed per diem allowance. Instead, you just need to prove that the employee incurred eligible expenses during the trip. This might be a dinner receipt rather than three separate receipts for breakfast, lunch and dinner.
Despite these guidelines, it’s best practice to track all expense and scan your receipts into accounting software.
Self-employed entrepreneurs travel just as much – if not more – than larger businesses. If you’re self-employed, you can also claim back your business expenses, including the cost of food and drink, provided you have the receipts to prove your expenses are genuine and necessary.
To qualify, the HMRC specifies that self-employed individuals meet these requirements:
Benchmark HMRC travel and subsistence scale rates include:
It’s always best to keep, scan, and store receipts for these food and drink expenses, along with other factors like travel costs. Then, you can claim these on your Self-Assessment return.
One of the best ways to manage your travel expenses and claims is through a business travel platform. With Booking.com for Business, you can not only book flights, accommodation, and rental cars from a single platform, but you can also track expenses in real time. Plus, admins can retain full control of their company’s business travel expenditure using a travel spend tracker, so you won’t miss any details, all while reducing manual paperwork and saving money at the same time.
Budget management is a major benefit of using the standardised subsistence allowance rates. That way, employees have a clear idea of how much they’re allowed to spend, and you can plan for reimbursement payments.
With a digital overview of business travel and expenses, you’ll be in the best position with HMRC. Create a tailored per diem allowance policy for your employees – all while claiming back your tax-free allowance.
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