Radical changes to RHA subsistence and overnight allowances
HMRC has recently confirmed changes to overnight allowances that will radically affect the payment of sleeper cab rates. There are serious implications for both employers and employees due to increased record keeping and auditing requirements.
Under a Road Haulage Association (RHA) agreement with HMRC that has stood for 26 years, employers have been able to make tax-free payments to lorry drivers to compensate for nights spent in their cab. Following last year’s changes to P11D dispensations, there’s been ongoing debate relating to these subsistence and overnight rates.
From 6 April 2016, the legislation for dispensations under the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) was repealed and dispensations ceased to exist. This resulted in the introduction of new legislation, and almost all expenses or benefits that might have previously been covered by a dispensation become exempt from tax and National Insurance Contributions (NICs), and no longer needed to be reported on the P11D form.
However, HMRC has recently announced that from 6 April 2017, employers wishing to pay the overnight allowance free of tax and NIC are required to apply for an Approval Notice from HMRC. In addition, if employers wish to pay or reimburse employees in excess of the rate agreed with HMRC at an industry-wide level (currently £26.20 per night), they will also need to apply for a Bespoke Allowance Agreement. The agreement then requires renewing every five years.
When applying, employers need to ensure that they have a robust checking system in place, including monthly random sampling of 10% of claims and receipts. This will mean increased record keeping, declarations and claims from drivers, who will also be required to keep receipts of actual expenditure.
Despite the new rules relating to checking and sampling taking effect from 6 April 2017, HMRC only advised on its stance in late April 2017. Employers need to act as soon as possible to avoid any additional reporting and unnecessary taxation. This includes reviewing their existing arrangements, introducing robust and effective policies and procedures, and communicating the revised checking requirements to employees. This will also ensure that the new arrangements are fully compliant and policy and process is effectively implemented.
The arrangements are now very similar to those introduced by HMRC many years ago for any employer wishing to pay the general HMRC approved scale rate payments. Historically, businesses would apply for an agreement to pay scale rate payments to employees via a dispensation. These were often based on a survey of actual expenditure incurred by a random sample of employees. In April 2009, HMRC introduced benchmark scale rates that could be applied without the need for a survey of actual expenditure and could easily be agreed in a P11D Dispensation. However, businesses were also required to introduce better record keeping, declarations, claims and receipts to ensure the rules are met and action is taken where employees fall short of the requirements.
In the Spring Budget it was announced that a review of the taxation of all benefits in kind, accommodation benefits and employee expenses will take place, so this latest development could be a front runner for more change ahead. Employers must remain alert to ensure new rules are managed effectively from both a company and employee perspective.