UK Employees Receiving Per Diem Payments: When Must They Disclose Them to HMRC?

UK Employees Must Understand Per Diem Tax Rules

Employees working in the United Kingdom who receive per diem payments for work-related travel should check whether the allowances qualify for tax relief or need to be declared as taxable income.

Per diem means a daily allowance paid by an employer to help cover expenses such as meals, accommodation and other costs incurred while working away from an employee’s normal workplace.

According to a report by The Economic Times, allowances that exceed applicable HM Revenue and Customs (HMRC) limits may be taxable and may need to be reported through payroll or a tax return. The correct treatment depends on the nature of the payment, the expenses incurred and the arrangements between the employer and HMRC.

What Are Per Diem Payments?

Per diem payments are allowances intended to cover expenses incurred during business travel or a temporary work assignment.

For example, an employee sent to another city or country may receive a daily allowance to cover meals and incidental expenses. Depending on the employer’s arrangements, accommodation and transport costs may be reimbursed separately.

However, calling a payment a per diem does not automatically make it tax-free. UK tax treatment depends on whether the payment meets the relevant conditions for exemption or tax relief.

When Can Per Diem Payments Be Tax-Free?

HMRC allows certain qualifying business-travel expenses and benchmark scale-rate payments to be treated as tax-free when the applicable conditions are met.

The Economic Times report cites the following benchmark meal-allowance rates provided by tax advisers:

Travel or work periodReported benchmark allowanceFive hours or more£5Ten hours or more£10Late evening, with work continuing beyond 8 pm£1524-hour period£25

These figures should not be treated as a universal allowance for every employee or every journey. Eligibility depends on the relevant HMRC rules, the employer’s arrangements and the circumstances of the business trip. Employees should verify the applicable rates and conditions before relying on them.

What Happens When Payments Exceed HMRC Limits?

If an employee receives more than the amount that qualifies for tax-free treatment, the excess may be treated as taxable employment income.

HMRC guidance states that when an employer reimburses more than the necessary cost of business travel, the excess generally counts as earnings and must be processed through payroll, unless an applicable arrangement provides otherwise.

Employees should therefore check:

• The total per diem allowance received.

• Whether the payment falls within an applicable exemption or approved scale-rate arrangement.

• Whether the employer has correctly reported the allowance through UK payroll.

• Whether any excess amount has been included in taxable earnings.

• Whether they need to make a separate declaration or claim tax relief through a UK tax return.

How Should Employees Report Per Diem Payments?

According to tax advice cited by The Economic Times, per diem payments that are taxable should generally be reflected in UK payroll and, where required, the employee’s tax return.

Where the allowance is taxable but the employee has incurred qualifying expenses at a temporary workplace, the employee may be able to claim tax relief for eligible costs. In such cases, the tax return may show the gross income alongside a separate claim for allowable expenses.

Payments correctly covered by an applicable exemption or qualifying arrangement may not need to be reported as taxable income by the employee. The precise reporting obligation depends on the treatment of the payment and the employee’s circumstances.

What Employees Should Do

Employees receiving per diem payments should take the following steps to reduce the risk of tax errors:

1. Review payslips: Check whether the allowance has been included in taxable pay or treated as exempt.

2. Ask the employer for clarification: Confirm which HMRC exemption or scale-rate arrangement applies.

3. Keep supporting records: Retain travel details, expense claims, receipts where relevant and employer correspondence.

4. Check the tax return: Ensure taxable allowances and eligible expense-relief claims are reflected correctly where a return is required.

5. Seek professional advice if necessary: Cross-border assignments and tax-residency questions can make the treatment more complicated.

HMRC advises employees to retain records supporting travel-expense claims and to raise discrepancies with their employer or HMRC when necessary.

What If an Indian Employee Receives Per Diem While Working in the UK?

The tax treatment can become more complex when an Indian employee is assigned to work in the UK but receives allowances from an Indian branch of the employer.

The relevant factors may include the employee’s tax-residency status, where the employment duties are performed, which entity bears the salary cost and whether the India–UK Double Taxation Avoidance Agreement (DTAA) applies.

The treaty’s employment-income provisions include an exception that can, subject to specific conditions, prevent the country where the work is performed from taxing the income. The conditions generally include a presence period of no more than 183 days during the relevant period, payment by or on behalf of an employer that is not resident in the country where the work is performed, and the remuneration not being borne by a permanent establishment or relevant enterprise there.

Meeting the 183-day condition alone is not sufficient. All relevant treaty conditions and the employee’s individual circumstances must be assessed.

Why Tax Residency Matters

An employee’s tax-residency status can affect whether per diem payments are taxable in the UK, India or potentially both countries, subject to domestic law and treaty relief.

Employees on international assignments should not assume that an allowance is exempt simply because it is paid by an Indian employer or deposited into an Indian bank account.

They should obtain appropriate documentation, confirm how the allowance is treated by the employer and consider professional advice where their residency or treaty position is unclear. The Indian tax-return reporting requirements may also differ depending on the individual’s residency and the nature of the income.

Key Takeaways

• Per diem payments are allowances intended to cover work-related expenses such as meals, travel and accommodation.

• Such payments are not automatically tax-free in the UK.

• Certain qualifying allowances may be exempt within applicable HMRC limits and conditions.

• Amounts exceeding the permitted tax-free treatment may be taxable and need to be processed through payroll.

• Employees should check payslips, confirm the employer’s tax treatment and keep supporting records.

• Employees on assignments between India and the UK must consider tax residency and the applicable provisions of the India–UK DTAA.

• The 183-day treaty condition does not by itself guarantee tax exemption.

Bottom Line

UK employees receiving per diem allowances should confirm whether the payments qualify for tax-free treatment under HMRC rules. Where an allowance exceeds the applicable limits or does not meet the exemption conditions, the taxable amount may need to be reported through payroll and, where required, a tax return.

Employees working across India and the UK should take extra care because tax residency, the location of employment and treaty conditions can affect the final tax position.

Disclaimer: This article is for general information only and is not tax or legal advice. HMRC rules and treaty outcomes depend on individual circumstances. Employees should consult HMRC guidance or a qualified tax professional for advice on their specific situation.