Employers can reimburse employees for travel and subsistence expenses without triggering an income tax charge, as long as the expenses are wholly, exclusively, and necessarily incurred in the performance of their duties.
This FAQ explains when and how you can reimburse employees tax-free, the relevant HMRC-approved rates, and key conditions to be aware of.
Claiming Travel Expenses – What Qualifies?
Employees can deduct or be reimbursed for travel costs as long as they are:
- Necessary for their job role (not personal expenses).
- Not normal commuting costs between their home and permanent workplace.
- Wholly and exclusively for business purposes (i.e., travel is a required part of the job, not just for convenience).
Overnight Business Travel – Tax-Free Allowances
If an employee is required to stay overnight for business, they can receive tax-free reimbursement for the following:
- Accommodation costs (e.g., hotels or B&Bs).
- Incidental personal expenses, such as newspapers, laundry, and phone calls, up to:
- £5 per night (UK stays).
- £10 per night (stays outside the UK).
These incidental expense limits are VAT-inclusive and must not be exceeded, or the full amount may become taxable.
Reimbursing Subsistence Expenses (Food & Drink)
For employees who incur subsistence costs while travelling for business, employers can make tax-free payments using HMRC’s benchmark rates:
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Type of Allowance
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Tax-Free Amount
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Conditions
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Breakfast Rate
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£5.00
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The employee must leave home before 6:00 am and buy breakfast away from home. Not for regular early starters.
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One Meal Rate (Five-Hour Rate)
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£5.00
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The employee must be away from home/work for at least five hours and incur a cost on a meal.
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Two Meal Rate (Ten-Hour Rate)
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£10.00
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The employee must be away for at least ten hours and incur a cost on meals.
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Late Evening Meal Rate
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£15.00
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The employee must work later than usual, finish after 8:00 pm, and buy a meal that they would normally have at home. Not for regular late shifts.
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Important Notes on Subsistence Payments:
- These payments must match actual expenditure—employees must incur a cost for the meals to qualify.
- If the business pays more than these amounts, the entire amount becomes taxable (not just the excess).
- Regular shift patterns (e.g., night shifts, permanent early starts) do not qualify for these allowances.
Mileage Allowance Payments for Business Travel
If an employee uses their own car for business travel, they can be reimbursed tax-free at the following approved mileage rates:
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Vehicle Type
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First 10,000 Miles (Per Tax Year)
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Over 10,000 Miles
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Cars & Vans
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45p per mile
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25p per mile
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Motorcycles
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24p per mile
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24p per mile
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Bicycles
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20p per mile
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20p per mile
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Passenger Allowance
If an employee carries another employee on a business journey in their own car or van, they can claim an extra 5p per mile, per passenger.
What Counts as a Business Journey?
- Journeys between temporary workplaces and business locations.
- Travel for work purposes that isn’t normal home-to-work commuting.
What Doesn’t Count?
- Commuting to a permanent workplace.
- Personal mileage.
- Travel unrelated to work duties.
Reimbursing Fuel for Company Cars
For employees driving company cars, the following advisory fuel rates (AFRs) apply from 1st December 2024:
Petrol Cars
- Up to 1,400cc – 12p per mile
- 1,401cc to 2,000cc – 14p per mile
- Over 2,000cc – 23p per mile
Diesel Cars
- Up to 1,600cc – 11p per mile
- 1,601cc to 2,000cc – 13p per mile
- Over 2,000cc – 17p per mile
Hybrid Cars
- Follow the petrol or diesel rates based on engine size.
Electric Vehicles
- 9p per mile (all electric cars).
Fuel Reimbursements – Tax Implications
- If the business pays less than these rates, the difference is not taxable.
- If the business pays more than these rates, the excess is treated as a taxable benefit.
- Employees must record mileage and retain receipts for tax compliance.
What Happens if Reimbursements Exceed HMRC Rates?
If employers reimburse employees above the HMRC-approved rates, the entire amount becomes a taxable benefit.
This means:
- The employer must pay Class 1A NICs on the excess.
- The employee’s taxable income increases, leading to a higher tax bill.
- The excess payments must be reported on the employee’s P11D form.
Employers can agree alternative rates with HMRC if they can prove their employees’ actual expenses exceed the advisory rates.
Record-Keeping Requirements
To ensure compliance, employers must keep detailed records of all travel and subsistence expenses, including:
- Receipts – Employees should keep receipts for all travel and subsistence claims.
- Journey details – Time, date, purpose, and locations of business travel.
- Mileage logs – For employees using their own vehicles, mileage logs must track dates, distances, destinations, and purposes of trips.
- Expense reports – A breakdown of all reimbursed costs, ensuring they align with HMRC guidelines.
If you need help with this, or with other advice, then please get in touch with our accounting team.