After going through the numerous threads re: dispensations, subsistence, umbrella companies and their (supposedly) dodgy dealings, I have decided to trawl through the Inland Revenue website, hoping to find some form of conclusive proof. What I found is the most useful Booklet 490 (http://www.hmrc.gov.uk/helpsheets/490.htm). Here are what I think are the most salient points:
Chapter 5 (The amount of relief)
Paragraph 5.3: “Relief is available only to the extent that an expense has actually been incurred.”
Example 2: “Matthew receives from his employer payments to meet the cost of hotel accommodation when he has to stay away overnight on business. Instead of booking into a hotel, he sleeps in his car. Matthew is taxable on the full amount received from his employer and no relief is available to set against the payment he received for overnight accommodation because no expense has been incurred.
Paragraph 5.8 discusses incidental expenses (see chapter 8 below)
Chapter 6 (National Insurance contributions)
Paragraph 6.2 example: “Nigel is sent to work at a temporary workplace for four weeks. As well as his traveling expenses he is given £30 a night subsistence to cover the cost of bed and breakfast at a hotel near the temporary workplace. However, Nigel stays with a friend and incurs no accommodation costs. The £30 a night he is paid by his employer is earnings and should be added to Nigel’s other earnings in the pay period to determine the Class 1 NICs due.
Chapter 8 (Tax rules on other types of travel and related expenses)
See paragraph 8.2 to 8.6 and in particular paragraph 8.4:
“Employees are entitled to relief for these expenses if the employer pays or reimburses no more than
• £5 for every night spent away on business in the UK
• £10 for every night spent away on business outside the UK.”
Chapter 10 (Dispensations and PSAs)
Paragraph 10.6: "The Inspector has to be satisfied that travel expenses and benefits covered by a dispensation are calculated and paid on the basis that they are clearly intended to do no more than reimburse employees for expenses actually incurred in making genuine business journeys."
Chapter 12 (Employees’ responsibilities)
Paragraph 12.4: "With respect to travel, the most important things which employees should keep are
• P11D details of expenses payments and benefits in kind
• details of claims for expenses they made to their employer and receipts which supported those claims (unless these are held by the employer)"
Paragraph 12.10 "Employees must be able to substantiate the statements they make. Where tax has been underpaid because an employee has obtained tax relief to which they were not entitled, or the amount of relief has been overstated, the Inland Revenue will seek to recover from the employee the tax lost, together with interest and, where appropriate, penalties and a surcharge."
Chapter 5 (The amount of relief)
Paragraph 5.3: “Relief is available only to the extent that an expense has actually been incurred.”
Example 2: “Matthew receives from his employer payments to meet the cost of hotel accommodation when he has to stay away overnight on business. Instead of booking into a hotel, he sleeps in his car. Matthew is taxable on the full amount received from his employer and no relief is available to set against the payment he received for overnight accommodation because no expense has been incurred.
Paragraph 5.8 discusses incidental expenses (see chapter 8 below)
Chapter 6 (National Insurance contributions)
Paragraph 6.2 example: “Nigel is sent to work at a temporary workplace for four weeks. As well as his traveling expenses he is given £30 a night subsistence to cover the cost of bed and breakfast at a hotel near the temporary workplace. However, Nigel stays with a friend and incurs no accommodation costs. The £30 a night he is paid by his employer is earnings and should be added to Nigel’s other earnings in the pay period to determine the Class 1 NICs due.
Chapter 8 (Tax rules on other types of travel and related expenses)
See paragraph 8.2 to 8.6 and in particular paragraph 8.4:
“Employees are entitled to relief for these expenses if the employer pays or reimburses no more than
• £5 for every night spent away on business in the UK
• £10 for every night spent away on business outside the UK.”
Chapter 10 (Dispensations and PSAs)
Paragraph 10.6: "The Inspector has to be satisfied that travel expenses and benefits covered by a dispensation are calculated and paid on the basis that they are clearly intended to do no more than reimburse employees for expenses actually incurred in making genuine business journeys."
Chapter 12 (Employees’ responsibilities)
Paragraph 12.4: "With respect to travel, the most important things which employees should keep are
• P11D details of expenses payments and benefits in kind
• details of claims for expenses they made to their employer and receipts which supported those claims (unless these are held by the employer)"
Paragraph 12.10 "Employees must be able to substantiate the statements they make. Where tax has been underpaid because an employee has obtained tax relief to which they were not entitled, or the amount of relief has been overstated, the Inland Revenue will seek to recover from the employee the tax lost, together with interest and, where appropriate, penalties and a surcharge."
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