A guide on subsistence and VAT
Subsistence is one of the areas that cause the most confusion when looking at VAT and expenses so we hope this article will help you understand the rules when claiming back your VAT.
The first area of misunderstanding is often the difference between staff entertainment and subsistence. Carry on reading to find out more.
4 minutes
Written by Steve Thomas, Finance Software and Systems Specialist
What is subsistence?
Put simply, subsistence is food and drink that the company pays for because their employee is away from their usual base for an extended period of time.
But staff entertainment is where the employee is at their place of work but the employer buys some food in for them or where they are invited to a meal or function of some sort.
As a practical example, let’s think of an engineer who usually works from a main depot and does their normal working day and then returns home.
A special job comes in where they have to work away for a day and stay overnight in a hotel and their company pays for a lunch and evening meal and breakfast the next day.
This is what is called subsistence and for VAT and PAYE purposes this is allowable as it is designed as a method of reimbursing food that has to be paid for purely as a result of doing the work for the company.
However, the company would not be able to claim the VAT back for food it pays for when the employee is working from their usual depot or office. So the food from their favourite sandwich bar around the corner from the office cannot be claimed.
If the business pays for food for employees at their normal place of work this is called staff entertainment and in certain circumstances, this can be claimed but there are different rules that apply.
In the case of subsistence, the company will reclaim the VAT through its normal return.
How much can the employee be paid for subsistence?
For VAT purposes the subsistence must be ‘reasonable’. In some cases, it’s easy to work out what HMRC probably means by this; an employee eating out at the Ivy every day might be a step too far.
But where is the line on ‘reasonable’? Confusingly subsistence is one of the areas where VAT and PAYE rules diverge.
Whilst there aren’t specified amounts for VAT, the PAYE regulations have some useful rules that we can use as a proxy.
HMRC uses things called ‘scale rates’ and these form the guide for the amount that can be reimbursed by employers for subsistence for their staff.
There are some important points here, the first of which is that the person reimbursed must be an employee. In HMRC’s own words they have to be:
- someone directly employed by you (and not through an agency)
- directors, partners and any other managers
- self-employed people who are treated as employees (you cannot reclaim on travel expenses for this group)
- helpers or stewards who help run events
And again, they need to be working away from their usual base.
HMRC allow an amount of money to be reimbursed dependent upon how long the employee has been away from their base.
Where they have been away for 5 hours or more the employer can pay £5 towards food and drink. For a period of 10 hours or more, the amount is £10 and where the employee has been away from their normal place of work for 15 hours or more then they can be paid £25.
It’s worth saying here that these are the general benchmark rates for subsistence but employers can agree on bespoke amounts with HMRC. There are also nationally agreed scales for certain occupations such as the Road Haulage Association that can be used.
Overall then it is important to remember that for VAT purposes the subsistence payment has to be for an employee, they need to be away from their normal place of work for a period of time and the payment must be of a reasonable amount.
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