Overnight Subsistence Allowance

Long distance LGV drivers normally receive a payment in respect of each rest period spent away from the home base. The payment includes a subsistence element and sometimes a further amount calculated a normal time rate or as a round sum allowance. The part of any rest period payment calculated at the time rate or additional round sum payment is chargeable to tax.

The subsistence allowance could cover the cost of the evening meal and breakfast in addition to the cost of overnight accommodation. Employers should be aware that:

1. it is their responsibility to determine the nature of payments made to the employees;
2. the subsistence element or other subsistence payments may be paid in full provided that
   1. documentary evidence is available to show that the employee concerned had spent the night away from home and his normal place of employment and incurred extra expense in so doing; and
   2. the amounts paid are no more than a reasonable amount to cover the extra costs involved.
3. provided that the documentary evidence((b)i above) is available, HMRC will accept that the nationally agreed overnight subsistence rate per night spent in the UK away from the drivers home and base does no more than reimburse the extra expense incurred.
4. An employer wishing to make subsistence payments in excess of this amount without deducting tax and may do so, provided that
   1. the payments merely reimburse the actual expenditure incurred and are made against formal claims from the employee concerned, or supported by suitable evidence, for example receipted bills etc; or
   2. the arrangements under which such payments are made have received the formal approval of HMRC
5. Subsistence payments in circumstances not covered above that exceed the nationally agreed limit should be subjected to tax.

Suitable documentary evidence would include:

• drivers' log sheets
• drivers' expenses claims
• receipts obtained on payment for lodgings eg bed and breakfast bills
• parking receipts and itinerary records kept by the employer in the pay records, or separately, as evidence of nights away from home and base.

However, the list is not exhaustive and further enquiries may be made by HMRC in order to satisfy themselves that no deduction of tax from payments made was justified. The subsistence payment can be made to porters having nights out when accompanying drivers in removals operations where the driver concerned is paid the subsistence rate, in accordance with the above conditions.

Lorries with Sleeper Cabs

The onus is on the employer to satisfy himself that any amounts paid free of tax are no more than a reasonable reimbursement of the average allowable expenses of the driver whilst staying away from home and place of work overnight. The mere fact that a lorry has a sleeper cab does not prevent the employer paying an amount tax free up to the nationally agreed limit provided that he is satisfied that the driver did incur expenses on overnight accommodation and meals.

Where the employer knows that the driver uses the sleeper cab, he should pay free of tax only what represents a reasonable reimbursement of:

• evening meal and breakfast
• washing facilities
• upkeep of bedding in the cab

Provided there is documentary evidence available to show that the employee concerned spent the night away from home and his normal place of employment, HMRC will accept that a payment of 75% of the nationally agreed figure does no more than reimburse the extra expense incurred when the driver uses the sleeper cab overnight. Where an employer wishes to make payments in excess of this amount without deducting tax he may do so provided he satisfies the conditions outlined above in (d)

The amounts of overnight subsistence negotiated and agreed by the Road Haulage Association with HMRC, effective from 1 January annually, are as follows:

• 2008 - £29.85 (sleeper cab rate is £22.39)
• 2007 - £28.62 (sleeper cab rate is £21.46)
• 2006 – £27.55 (sleeper cab rate is £20.66)
• 2005 - £26.90
• 2004 - £26.00
• 2003 - £25.15
• 2002 - £24.50

75% of the above figures should be used where drivers use sleeper cabs.

These rates are negotiated with HMRC in January each year, and the new rates are published at: http://www.rha.net/public/adviceandinfo/subsistence.shtml

Overseas Travel

The amounts shown above relate to allowance for nights away from home and base in the UK. They may not be appropriate for overnight subsistence on continental journeys, where costs can and do vary from country to country. Companies that have drivers travelling regularly to Europe, and beyond, may agree higher daily rates by providing their HMRC office with evidence of higher and other costs eg costs of currency conversion and fluctuation; additional costs may include 2 or more showers per day (especially in Mediterranean areas in summer), bottled water, parking in secure areas (particularly taking account risk assessment and the need to protect the vehicle, load and driver - these areas tend not to provide the cheapest local food). Again, formal dispensation should be agreed before higher amounts are paid.

Mid-Day Meal Allowances

Many employers meet the cost of, or contribute towards, a drivers mid-day meal by either issuing meal vouchers or making a cash payment. These contributions may be treated as not taxable where they:

1. are reasonable in amount, ie they do not exceed £2.00 per day; and
2. are paid to long-distance lorry drivers whose duties oblige them to take meals away from their home and normal place of employment. Similar treatment may also be given to coach drivers in comparable circumstances, but not to drivers who have fixed or local routes.

The guidance provided by HMRC states that where the amounts paid exceed the above thresholds, the excess should only be paid without deduction of tax if the employer satisfactorily demonstrates that the additional amount paid only reflects the actual additional expenditure incurred by drivers or where dispensation has been given by HMRC. The onus is on the employer to satisfy himself that expenditure of the relevant amount is actually being incurred by the driver. If the employer has no acceptable evidence to justify the rate paid, the amounts paid in excess of £2.00 per day should be paid under deduction of tax. However, it is recommended that if more than £2.00 is being paid dispensation should be sought.

The £2.00 per day mid-day meal rate has not increased since 1988.

Incidental overnight expenses

"Incidental overnight expenses", up to the value of £5 per day if in the UK, or £10 per day outside the UK, can be paid tax free in addition to subsistence and a meal allowance in accordance with Appendix 8 of the HMRC booklet 480 (“General Rules for the Treatment of Employment Expenses”). Employees staying away from home overnight on business often incur additional expenses of a personal nature, such as newspapers, laundry and calls home. Although this may arise as a consequence of working away from home it is not incurred necessarily nor in the performance of the employee's duties. Under the expenses rule that apply to travel costs this type of expenditure would not be allowable as a deduction. If this expenditure was met either wholly or in part by the employer tax would be due. A special exemption provides that employers can pay for incidental overnight expenses relating to a qualifying absence up to a tax free limit, without any tax consequences for the employee – or NI for the employer. However, as with the subsistence and meal allowances, employers must ensure that the expenses are actually being incurred and have the necessary checks in place. If the employers payment exceeds the tax free limit the whole payment becomes taxable, not just the excess.

National Insurance

Where payments are made tax free in accordance with the requirements outlined above, they do not usually attract NI.

P11D's

The mid-day meal allowance and overnight subsistence allowance should be included in P11D's unless the company concerned has agreed dispensation with their own local HMRC office.

Licence & Medical Costs

Where an employed driver meets the cost of renewing an LGV licence and any medical costs directly related to renewing that licence from his or her own pocket, the driver may claim tax relief for those costs. Drivers who get a tax return can make a claim by entering the appropriate amount on the return. If they do not get a tax return, they can make a claim by letter or on form P87 which they can request from their tax office.

Self Employed Drivers

HMRC has confirmed that the agreed rates do not apply to drivers who are self-employed. The rule for them is that in calculating their profits for tax purposes they can deduct expenses incurred "wholly and exclusively" for the purposes of their trade. The following has been provided by the HMRC, from their Business Income Manual.

BIM37670 - Wholly & exclusively: Duality of, or non-trade, purpose: Accommodation and subsistence: The approach in 'itinerant' [travelling] trades.

What to do in practice

The cost of meals taken away from the place of business is not in general an expense incurred wholly and exclusively for business purposes, since everyone must eat in order to live. Where such costs are disallowable they cannot be apportioned to allow extra costs incurred from the necessity of eating and drinking away from home or the place of business.

Itinerant trade journeys outside the normal pattern

But extra costs may be incurred wholly for business purposes where a business is by its nature itinerant (for example in the case of commercial travellers), or where occasional business journeys outside the normal pattern are made. Inspectors may allow a deduction for reasonable expenses incurred in these circumstances.

Overnight accommodation and subsistence

Where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible. This does not extend to overnight accommodation and subsistence at the base of business operations, even if there is a contractual requirement for the trader to reside in a particular place. The reasonable costs of meals taken in conjunction with overnight accommodation are allowable, whether or not paid on the same bill.

ong distance lorry drivers subsistence

The same treatment may be extended to self-employed long distance lorry drivers who spend the night in their cabs rather than take overnight accommodation. The text of a Tax Bulletin article, August 1993, page 88 is as follows

Lorry drivers: trade deductions: meals: cost of

In considering the application of ICTA88/S74 (a) to the cost of meals taken away from the place of business, the Courts have held that no deduction is due because it cannot be said that the expense was incurred wholly and exclusively for the purposes of the trade since everyone must eat in order to live.

However, HMRC have long accepted reasonable claims for the cost of evening meals and breakfast taken in conjunction with overnight accommodation if the cost of the accommodation would otherwise be allowable as an expense in carrying on the trade or profession. This practice has received the approval of the Courts.

Long distance self-employed lorry drivers have therefore been able to claim a deduction for the reasonable cost of meals taken in conjunction with overnight accommodation.

HMRC have been asked whether this treatment can be extended to such drivers who spend the night in their cabs rather than take overnight accommodation and have confirmed that it can.

It should be emphasised that it is only `reasonable' expenses which may be allowed and the expenses claimed must be supported by adequate contemporaneous records.

March 2008