Maximising Your Expense Claims: A Guide to Tax-Neutral Reimbursements and Scale Rate Payments

June 9th, 2023

As an employee, you've probably had to incur expenses while on the job, such as travel and subsistence expenses, fees, and subscriptions. Usually, you pay for these expenses first and then get reimbursed by your employer. But did you know that if certain conditions are met, reimbursed expenses are tax-neutral?

This means that your employer can ignore the payment to you, and you don't have to pay tax on the reimbursed amount or claim a tax deduction for the expense that you initially met. The exemption applies if you would be entitled to a deduction if you incurred the expense personally. However, it doesn't apply if the payment is made under a salary sacrifice arrangement.

To be deductible, an expense must be incurred wholly, necessarily, and exclusively in the performance of your employment duties. You may also be entitled to a deduction under a specific legislative provision, such as for travel expenses or fees and subscriptions.

For example, if you're a dentist required to be a member of the British Dental Association by your employer, and you pay your annual subscription which you later reclaim from your employer, the exemption applies, and the reimbursement is ignored for tax purposes.

The exemption also applies to scale rate payments for travel and subsistence expenses, as long as the amount has been calculated in an approved way and your employer is satisfied that you've undertaken the travel in respect of which the expense has been claimed. The employer can pay subsistence expenses using HMRC's benchmark rates set out in regulations or agree bespoke rates with HMRC. However, the exemption doesn't apply if the payments are made under a salary sacrifice scheme.

For instance, if you're required to visit a supplier as part of your job and undertake seven hours of qualifying travel, you're entitled to claim a meal allowance. If your employer pays the statutory amount of £5, the exemption applies, and the meal allowance is ignored for tax purposes.

Lastly, if your employer meets the cost of an expense that would be deductible if incurred by you personally, such as the cost of a train ticket for you to visit a customer for a meeting, the amount paid is simply ignored for tax purposes.

So there you have it! As long as you meet certain conditions, reimbursed expenses can be tax-neutral, and scale rate payments can be used to reimburse travel and subsistence expenses.