How to create and manage a subsistence allowance scheme

Published: 14 February 2025 | by Brightmine

In the hyper-competitive UK job market, attracting and retaining top talent has become a strategic imperative for businesses. As organisations vie to secure the best minds, innovative employee benefits are emerging as a key differentiator.

One such offering is the subsistence allowance scheme, a financial benefit designed to support employees with everyday living costs, such as meals and travel. This scheme not only alleviates financial burdens but also demonstrates an employer’s commitment to employee well-being. In a talent market where candidates often weigh benefits as heavily as salaries, subsistence allowances can tip the scales in favour of companies that prioritise holistic support.

Which is all well and good. But how do subsistence allowance schemes work, what are the rules, and what must you do to start one? Let’s find out…

What does subsistence allowance mean?

A subsistence allowance means a payment or reimbursement paid to an employee to cover the basic costs of meals, transportation, accommodation and other travel expenses when they’re away from their usual place of work. Subsistence allowance schemes are designed to help with the additional expenses employees may incur while working on the go or staying overnight for work-related reasons.

For example, if an employee is required to attend a conference in another city, you might provide a daily allowance to pay for things like meal expenses and accommodation to ensure they’re not out of pocket. It’s not about luxury, it’s about covering the essentials to keep your workers comfortable and focused on their job.

In the UK, there are specific rules around the amount that can be paid tax-free. Businesses, employees and the self-employed should ensure they stay within HMRC guidelines.

What can you claim for?

• Providing travel.
• Reimbursing travel.
• Accommodation (if your employee needs to stay away overnight).
• Meals and other ‘subsistence’ while travelling – this means meals and any other necessary costs, for example parking charges, tolls, congestion charges or business phone calls.

However, in all cases:

• The expense must be necessary and spent as part of the employee’s duties.
• The expense is reasonable and wouldn’t normally occur as part of everyday work.

What can’t you claim for?

• Meals consumed at home.
• Travel to and from the normal place of work (commuting).
• Personal employee expenses that are not related to a business trip.

What is a per diem allowance?

‘Per diem’ originates from the Latin phrase meaning ‘by the day’. A per diem allowance is a daily stipend designated to cover expenses incurred by employees during business travel, and it is another name for a subsistence allowance.

Understanding HMRC allowance rates

HMRC sets standard allowance rates (also known as ‘standard scale rates’) to cover common business travel expenses. Sticking to the standard scale rates allows employees to quickly and easily claim back costs incurred during business travel and removes the need for individual authorisation or approval for each expense. Note that companies can opt to provide a more generous daily UK per diem rate for their employees, but they’ll need to pay tax on the excess when claiming these costs as expenses.

Alternatively, businesses that incur substantial travel-related expenses can work with HMRC to agree on a bespoke or set scale per diem rate for the UK. To do this, you’ll need to contact HMRC and submit receipts showing how much your employees typically spend on meals and other regular travel costs.

Current HMRC standard subsistence allowance rates for the UK – per day:

• £5 for at least five hours of travel.
• £10 for at least 10 hours of travel.
• £25 for at least 15 hours of travel.
• Supplementary rates of £10 can be paid if the journey goes beyond 8:00 pm.

Claiming for meals

There are strict rules for claiming meal allowances:

• Meals must be purchased during the business trip.
• The journey must be official and outside of the employee’s usual place of work.
• The trip must be a minimum of five hours’ duration.
• Employees can only be reimbursed once for a meal.

Claiming for overnight accommodation

There are no preset scale rates for overnight stays within the UK. However, there are HMRC guidelines for international journeys, with subsistence rates varying from country to country and for different cities inside each country. Typically, you’re allowed a per diem rate (5 hrs, 10, hrs, 15 hrs) to cover things like meals, taxis and phone calls, plus a nightly rate to cover the cost of accommodation. See the full list of HMRC international subsistence rates here.

Calculating subsistence allowance

To calculate subsistence allowance in the UK, simply use HMRC’s approved scale rates, which set daily amounts for meals and other expenses during official business travel. These rates vary depending on the trip’s duration (e.g., 5 hours, 10 hours, or overnight). Employers can also agree on bespoke rates with HMRC. The allowance must reflect actual business travel costs, and no receipts are needed if the set rates are used.

Are employers required to provide subsistence allowance?

There is no legal mandate for UK employers to provide subsistence allowance and some organisations may prefer to compensate employees only for their actual out-of-pocket travel costs. However, in a tight labour market it can often make sense to demonstrate a more generous attitude towards business travel. Paying subsistence expenses under the flat rate scheme can often appeal to employers and employees alike and may provide a valuable addition to your employee’s total reward package.

Creating a subsistence allowance scheme

How to create an effective subsistence allowance scheme in five simple steps:

1. Determine coverage, rates, and maximum reimbursements

Start by building an internal template that defines which expenses your subsistence allowance scheme will cover, such as meals, accommodation, and travel for business-related trips. You can use HMRC’s standard scale rates as a baseline, ensuring they are fair and realistic for your employees while remaining compliant with tax regulations. If bespoke rates are preferred, agree these with HMRC to avoid tax issues. Clearly establish maximum daily reimbursements based on trip durations (e.g., 5 hours, 10 hours, or overnight).

2. Draft a clear subsistence allowance policy

Develop a policy that outlines:

• Which expenses are covered (e.g., meals, accommodation, travel)
• The rates and limits for reimbursements
• Procedures for claiming expenses (e.g., deadlines and required evidence)
• Any exclusions (e.g., alcoholic beverages or personal purchases)
• The importance of adhering to company travel policies and HMRC guidelines.

The policy should be straightforward and accessible, leaving no room for ambiguity. Be sure to highlight that compliance with HMRC rules is essential to avoid tax liabilities.

3. Create any necessary supporting documents

Prepare the following documents to ensure smooth implementation. These may be electronic or paper-based, automated or manual, and may be easily produced with appropriate HR software:

• Expense claim forms
• A travel log template for recording trips and expenses
• HMRC approved rates and limits for reference
• A step-by-step guide for employees explaining how to claim subsistence allowances
• Managerial checklists to approve expense claims efficiently

4. Communicate the policy to employees

Introduce the policy through a company-wide announcement, ensuring employees understand its purpose, how it benefits them, and how to claim allowances. Host informational sessions or webinars to walk employees through the process and address any questions. Provide easy access to the policy and supporting documents through the company intranet or email. Emphasise the importance of submitting claims accurately and on time.

5. Train your managers

Managers will play a crucial role in implementing the scheme. Train them on:

• Policy details and compliance with HMRC guidelines
• Approving and reviewing expense claims
• Identifying and addressing non-compliance or misuse

Subsistence allowance schemes for retention and recruitment

An effective subsistence allowance scheme can be a win-win for employees and employers. It simplifies expense management, ensures fair compensation, and demonstrates a commitment to employee well-being. By making business travel less burdensome, such schemes can boost job satisfaction, attract top talent, and strengthen employee retention—powerful advantages in today’s competitive labour market.

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