Contractors’ Questions: What are scale rates & benchmark scale rates?

Contractor’s Question: What are scale rates, and is true that HMRC have introduced a benchmark scale rates, apparently though just for meals? How do scale rates, or the benchmark rates, intend to help the average umbrella contractor?

Expert’s Answer: There are a few questions within this overall question so let’s break it down into the following sections – Scale Rates, Benchmark Scale Rates and the Benefits.

Scale Rates

Scale rates were introduced because for some expenses it is difficult to obtain receipts, therefore for widely incurred expenses, such as travel and subsistence; an employer can set a rate which is standard across the company. A receipt does not need to be produced but the employee should keep a record of the expense.

For example, at Independent Contractor Services (ICS) an employee may claim a cost per mile for allowable business journeys in his or her own vehicle but does need to provide proof of a fuel purchase. There is a distinction between the first 10,000 miles in any tax year and any subsequent miles. See the approved rates that may be claimed on the website of HM Revenue & Customs.

Benchmark Scale Rates

HMRC have introduced benchmark scale rates and this applies to meals. Receipts are not required in support of claims but you must be able to confirm that a meal was purchased and that the cost relates to a qualifying business journey to or from a temporary workplace.

Breakfast rate (irregular early starters only) - A rate of up to £5 may be paid where the employee leaves home earlier than usual and before 6am and incurs a cost on breakfast taken away from home. If you regularly leave home before 6am you would not be entitled to use the breakfast benchmark scale rate.

One meal rate (5 hour rate) - A rate of up to £5 may be paid where the employee has been away from their home/normal place of work for a period of at least five hours and incurred a cost on a meal.

Two meal rate (10 hour rate) - A rate of up to £10 may be paid where the employee has been away from their home/normal place of work for a period of at least ten hours and incurred a cost on a meal or meals.

Late evening meal rate (irregular late finishers only) - A rate of up to £15 may be paid where an employee has to work later than usual, finishing work after 8pm having worked their normal day and has to buy a meal which they would usually have at home.

If you are paid an allowance under the five or ten hour rule, the late meal allowance could still be paid if you finish work after 8pm and buy a meal that you would normally have at home. However, if you regularly finish work late you would not be entitled to use the late evening meal rate.

Please note that claims cannot be made where any of the following apply:

The employee has been working at their permanent workplace, even if they left home before 6am or worked after 8pm. No meal has been purchased. The employee has brought food from home such as packed lunches.

Benefits

Finally your question asks how scale rates including benchmark rates, help the average umbrella contractor. In a nutshell, if it were an umbrella contractor working via ICS, they would simply have to submit a mileage form and have proof of the fuel purchase every week or month and our team would calculate the expenses due.

For meals, it means they can claim for the meal even if it was difficult to obtain the receipt. However, those working in expensive city centre’s may find themselves struggling to eat lunch on £5.00 per day and, in this case, it would be best to claim the expense in full by supplying receipts and declaring their expenses on tax paperwork.

Scale rates were brought in by HMRC in an attempt to help employers as a dispensation is not required and they do not need to undertake a sampling exercise. If the employer wants HMRC to agree to higher subsistence rates than the scale rate ones they would have to undertake a sampling exercise.

The expert was John Lyon, managing director of Independent Contractor Services (ICS), a specialist in tax and IR35 compliance advice for UK contractors and freelancers.