As always the starting point for all questions relating to employee benefits is A to Z on gov website, link given below:
The question in hand, an employer a construction company (shop fitters) gives cash sums to employees when they are staying overnight away from home for accommodation and meals
C – Cash Sum payments to employees
I have listed below two main types of expenses paid by employers – private and business. Business expenses have been further categorised in four types.
|A||Private expense||You pay employees private expense. Always considered as employee earnings.||Tax + NIC|
|1||Reimbursement of actual expenses||You pay expenses on submission of expenses receipts by employees. You will need to apply for exemption with HMRC.
The Application form is simple with additional guidance.
|No Tax or NIC|
|2||Round Sum Allowances||You pay an employee regardless of how they spend the allowance.||Tax on full amount
NIC : Allowance minus expenses
|3||Scale rate payments||You pay at a level agreed with HMRC. The employee has to actually spend the scale rate payment on business expenses.
Again the process of applying for exemption is same as in point 1.
|No Tax or NIC|
|4||Special arrangements with HMRC
Certain employments have special rules for taxation of employment income see EIM 50000 onwards
|Construction industry workers are covered under a special scheme – `Working rule agreements` see below EIM 71300.||No Tax or NIC for payments up till the approved rates|
EIM 71300: working rule agreements
- Applies to employees in construction and allied industries.
- Applies only to travel and lodging allowances.
- Apply only were payments made according to strict terms and conditions of this rule, for these details go to HMRC manual EIM 71300.
- Neither employer nor the employee need to be a member of any federation or trade union.
It’s advisable to apply for scale-rate payments exemption with HMRC as per point 3.