Per diem allowances for business travel
Managing your company's travel spend can be challenging. Without proper oversight, expenses can add up quickly and go over your travel budget.To prevent that from happening, you can add per diem allowances to your corporate expense policy to help set and regulate travel-related expenses. Here's a guide to help you navigate the complexities of business travel and per diem policies so you can keep travel spending in check.What is a per diem allowance, and what does it cover?
A per diem allowance, also known as a scale rate payment, is a fixed amount paid by an employer to an employee to cover incidental expenses incurred while travelling away for business purposes. Travel expenses must be directly related to your employees' job duties and contribute to achieving company goals.Per diem payments are typically used to cover subsistence expenses like meal costs, travel expenses, room rates, and even dry cleaning. The government provides official travel benchmark allowances that consider things like average maximum lodging costs, the general cost of living and travel regulations. However, individual cases can be assessed based on typical employee expenses.Per diem rates vary depending on whether the employee travels within their home area, domestically, or internationally. While most jurisdictions allow per diem reimbursements, there are specific conditions and maximum limits to follow.Per diems are generally tax-free and considered reimbursements, not income. However, if expenses exceed HMRC's limits, per diems may become taxable benefits for employees. In such cases, any excess expenses should be included in the employee's payroll.Who sets per diem rates in the UK?
In the UK, per diem rates are set by His Majesty's Revenue and Customs (HMRC). These rates are standardised daily allowances that cover various expenses incurred during business travel, such as meal allowances, accommodation and incidental costs.- HMRC updates these rates periodically to reflect changes in living costs and other relevant factors. It's important for businesses to stay informed about the current per diem rates and ensure compliance with HMRC regulations.
Per diem rates in the UK: 2024
Per diem rates in the UK can vary depending on several factors, including the location of the travel, the duration of the trip and the type of expenses being reimbursed. Generally, the standard per diem rates for business travel in the UK are as follows:- £5: For trips lasting 5 hours or more.
- £10: For trips lasting more than 10 hours.
- £25: For trips lasting more than 15 hours that continue past 8 pm.
What are the benefits of per diem allowances?
Per diem allowance rates provide employees with a certain amount of flexibility and trust when travelling for business. They reduce expense volatility, facilitate planning for a business trip, and decrease the administrative burden on both the employee and employer.Per diem allowances often promote mindful spending, as business expenses are limited by the agreed allowances. They also encourage professional development—employees are far more likely to travel for learning opportunities if their expenses are covered.What are the drawbacks of per diem allowances?
While flexibility and prudence are beneficial, they can also be detrimental if unmonitored. If employees begin to consider their per diem allowances part of their income, they may cut corners to pocket the change from actual expenses.Internal governance systems can be put in place to monitor this. However, this offsets the administrative benefits of per diem payments. It’s also possible that employee travel could increase unnecessarily due to per diem allowances—travelling for meetings is more attractive when you’re essentially paid a little extra to do it.How do per diem allowances work?
When an employee goes away on a business trip, the company has to ensure their per diem allowance is available. Whether it’s the HMRC benchmark allowance or a custom rate established through the company, employers need reassurance that their employees’ expenses are covered.Traditional expense reporting can be tiring for both the employee and the travel manager. On the one hand, the employee must compile all travel costs into an expense report. On the other hand, it’s the company’s (or travel manager’s) temporary duty to monitor and remain vigilant of business expenditure when trusting their employees.Per diem payments, however, provide the employee with a daily allowance in advance. It helps avoid the paperwork, given it remains within the standard rate, and reduces waiting time for employees claiming reimbursements for travel expenses, as their spending is pre-approved.How is per diem paid to employees?
How employees receive their per diem payments is up to the company and can be one of a few options:- Cash in hand: The employee receives the per diem payment upfront to use when necessary.
- Corporate credit cards: These can have limits and be monitored to ensure no employee misuse.
- Private spend: The employee uses their own money and is reimbursed upon return or regularly—like the last day of every month—if it’s a longer trip.
Can you keep unused per diem payments?
Per diem payments can be made before or after the employee travels. If made before, the employee has the agreed allowance on hand to spend. If made afterwards, the employee covers the costs of the trip and is reimbursed once back at the office, receiving the agreed per diem allowance. In both cases, the amount they receive is fixed, and repayment is not necessary if this fixed amount isn’t spent.Deciding whether per diem payment rates fit your business is a complicated but essential part of creating a business travel policy. Head to the TravelPerk Corporate Travel Policy Guide to learn how to simplify managing corporate travel by establishing a travel policy.Can you keep unused per diem payments?
Per diem payments, following the scale-rate payments system managed by HMRC, can be made before or after the employee travels. If made before, the employee has the agreed allowance on hand to spend. If made afterward, they are reimbursed the per diem allowance agreed. In both cases, the amount they receive is fixed, and repayment is not necessary if this fixed amount isn’t spent.Deciding whether per diem payment rates are your businesses’ best bet is a complicated but essential part of creating a business travel policy. Whether it's a 40-minute train to another office or a business trip to New York City, head to the TravelPerk Corporate Travel Policy Guide for more information and options regarding managing corporate travel.How is per diem calculated on travel days?
Travel managers have two options for calculating per diem payments:- Standard per diem rates: These are daily allowances determined by HMRC benchmarks.
- Company-determined rates: Company leaders establish daily rates for business travellers. They calculate this based on previous travel expenses, and the current travel rates. Once determined, they’re communicated and agreed upon with the relevant governing body.
The first is a ‘one-size-fits-all’ approach that minimises your company’s finance team’s administrative burden. Just look up the rate and stick to it—pretty simple. The downside to using standard rates is that the predetermined daily rate may not be enough for travelling employees. However, agreeing on a rate with the relevant authority provides increased flexibility while still qualifying as tax-deductible but requires more paperwork at first.Using company-determined rates can be more expensive. It also requires data input that may be hard to scrape together if you haven’t been using a travel management tool. If you can’t find average spending for previous business trips, it will be difficult to assign a realistic company-determined rate.Are receipts required for per diem payments?
No, receipts aren’t required for per diem payments in most cases. It’s a major benefit of per diem allowances—they don’t require as much paperwork as traditional expense reports.If you use the rates set by authorities, receipts aren’t needed. Employees get the standard rate, decided by what the governing bodies calculate to be the average business travel expenditure per location.If you plan to use a company-specific per diem rate that exceeds the HMRC’s standard, employees will need to justify the rate with supporting documentation, such as receipts or expense data. If the excess spent can’t be justified, it is treated as taxable income.Traditional expense reports for reimbursing travelling employees require employees to collect and submit receipts to management. Once approved by the travel manager, the accounting team handles the expense report and employee reimbursement.Managing per diem allowances for UK business travel
Per diem payments are a great way to lessen the administrative burden of travel expenses for the travelling employee, management and finance teams.Diving deeper shows how useful per diem rates are to businesses when it comes to tax and paperwork and how they allow flexible travel arrangements for employees.Per diem rates differ depending on domestic and international travel, as costs vary depending on where your employees are in the world. We’ll be covering foreign per diem rates as part of this TravelPerk per diem allowances guide, so read on for more information.?)
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