What is a per diem?

Per diem payments typically cover expenses like meal costs, lodging costs, entertainment, and travel expenses while travelling away for business purposes. Since per diems are intended to cover employee expenses related to the business and not to serve as an additional perk, they are in essence non-taxable.

Working with per diems instead of actual expenses may be easier for companies, as it eliminates the need for employees preparing detailed expenses with supporting receipts while travelling on business.

What does a per diem allowance cover?

Per diems are provided as a daily allowance. This is for a full day’s work. A per diem allowance is a fixed amount paid by the employer to an employee to cover incidental expenses while travelling away for business purposes. Generally, a per diem allowance covers the meal, travel, and accommodation expenses.

When claiming travel expenses, it should be noted that it needs to be a business-related claim.

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How do per diems work?

Per diem rates differ based on whether the employee travels in his or her home area, away from home or internationally. Most Jurisdictions allow the use of per diems, but with conditions and maximum payout amounts.

Per diems are non-taxable and they are considered as reimbursement and not income but if any expenses go over HMRC limits then per diems will be considered a taxable benefit to employees. When subsistence and travel expenses exceed the maximum limit set by HMRC, they should be included legally in the employee payroll.

This must be included in insurance and taxes withheld from the employee. Therefore, it is important to have proper amounts that are allowed by HMRC to ensure that the company is avoiding non-compliance with the payroll and the tax laws in the UK.

What are the per diem rates in the UK?

Travel must be in the performance of the employee’s duties or to a temporary workplace. The employee should be absent from their normal workplace or home for a continuous period of 5 or 10 hours and the employee should have incurred meal costs after starting the journey. The guidelines for the rates usually are as below:

£5 for more than 5 hours of travel
£10 for more than 10 hours
£15 for more than 12 hours
£25 for 24 hours and is ongoing at 8 pm

An additional £10 for travel after 8 pm.

When can you receive a per diem allowance?

In general, the payments are received within a week or per day but there can be advance payments too. However, all advance payments are not the same. Some bear a badge from approval of HMRC and are titled Scale rate payments that are agreed with HMRC or payments made in accordance with the HMRC Benchmark scale rates.

HMRC also provides benchmark rates for employees travelling outside of the UK for international business. Per diem rates vary depending on the destination country and the country in which the company is based.

If you are looking to find out more about mileage allowance when driving your personal vehicle for business purposes, check our HMRC mileage guide, explaining the rules in the UK and how mileage allowance works.