Per diem: meaning, examples, and more

If you travel for work, your company might give you a per diem to cover some of your expenses. In contrast to submitting your receipts in a report after a trip or taking a company credit card with you, a per diem is a lump sum for you to use to cover your business expenses while you’re away from your usual office.

This post is your guide to what to expect from a per diem: meanings, examples of how it can be used, and what it means in terms of tax. 

What is a per diem in the UK?

Let’s start with the basics: what does per diem mean? If you translate the Latin literally, the meaning of per diem is ‘per day’. This is fitting, because a per diem payment is made up of a certain amount of money per day of a business trip.

Companies have a couple of options for covering their employee’s expenses while they’re away from the office (for example, travelling on a business trip in the UK or abroad, attending a training course or conference, or visiting a client in a different city).

• They can ask you to keep your receipts and submit an expense report when you get back to your usual workplace. The problem with this is that you can be out of pocket for a while before the report is processed and reimbursed, and it can be difficult to keep track of all the receipts you collect while you’re on the go. (For example, imagine tracking e-receipts for train tickets, paper receipts from coffee shops, and tracking taxi fares for a multi-day business trip).
• They can give you a company credit card to use while you’re away. This is a convenient way for employees to pay for the things they need. The problem is that companies then need a strict policy about what can be charged to the card and what can’t, which leads to a lot of auditing work (and potential conflict) later.
• They can issue a per diem to employees as a lump sum for each day they’re away from their office, and the employee can decide (within certain guidelines, and still holding onto their receipts) what they spend the money on.

If companies choose a per diem structure, it’s usually because of:

• Added transparency. The company has one rate, paid to everyone who travels for business.
• Instead of the process of requesting, itemizing, and querying expense reports (which is complicated for the company’s accountants as well as for the employees themselves), the per diem is transferred to the employee’s account. 
• When a company uses this system, it ensures that travel expenses are tax deductible for the company and that the money isn’t taxed as income for the employee.

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What does a per diem cover?

Per diem payments are meant to cover the cost of the expenses of doing business and adapt easily to what the employee needs while they’re on the road. But what exactly they cover is mostly at the employee’s discretion – as we mentioned above, that’s one of the main reasons why a company would issue a per diem instead of another system.

Companies might have their own rules about what a per diem can and can’t be spent on, and there are some conditions from HMRC (by the way, if you’re wondering, ‘What is the UK equivalent of per diem?’ HMRC uses the term ‘subsistence allowance’ when they talk about the maximum ceiling of per diem expenses for each day of a business trip):

• The expenses must be business related and spent in connection to a journey outside of the employee’s normal working area
• The employers must keep records of the expenses for when they claim the per diem allowance back on their tax returns
• The amount paid must not be more than the HMRC-approved rate (above which the payments would have to be taxed).

This means that per diems are typically spent on food, accommodation, travel expenses, and personal ‘incidentals’ like hotel laundry services, phone calls home, and newspapers. Your company might cover larger travel expenses in other ways, for example, by putting a hotel room or train ticket on the company card or asking you to claim mileage for the cost of fuel if you travel to a conference.

It’s important to remember that other personal items not related to the business trip – like souvenirs or tickets to an attraction during your downtime on your trip – are never included and have to be paid from your own pocket. But before you travel, it’s also important to check with your company whether they have any more specific guidelines for per diems.

How is the per diem paid?

Per diems in the UK are paid out in a lump sum to the employee as a cheque or bank transfer either before or after their trip, depending on company policy. Importantly, your per diem payment should arrive separate to your wages.

There are fixed rates for subsistence allowance based on how many hours (or how many meal-times) you’re travelling for.

• £5.00 for one meal and up to five hours of travel
• £10.00 for two meals and 5–10 hours of travel
• £15.00 for three meals and 10–12 hours of travel
• £25.00 ceiling for 24 hours of travel.

If your trip covers multiple days, you’ll typically get a partial rate for the first and last days. Meals can also be deducted if they’re not paid for by the employee. For example, if you’re away for 11 hours for a training course but lunch is included, subsistence allowance would be £10.00 rather than £15.00.

HMRC also sets subsistence or per diem rates for trips from the UK to other countries.

The guidance on their website covers the rates for 5, 10, and 24 hours, the room rate, and the meal and drinks allowances in the local currency. For example, the current 24-hour subsistence rates include:

• $US 102.50 plus room rate for a trip to New York, USA
• $AUS 195.00 plus room rate for a trip to Sydney, Australia
• € 72.00 plus room rate for a trip to Berlin, Germany
• € 117.00 plus room rate for a trip to Paris, France.

Are per diems taxable?

It’s very common to ask whether the money you receive as a per diem/subsistence allowance is taxable. The answer is a firm no, and that’s partly why the system exists. Per diems are there to cover the expenses of doing business, so they’re not part of your income and they can’t be taxed as such.

However, this is also why you’ll have to keep receipts for your expenses. Per diem payments are also tax deductible for the companies that issue them, and they need to show evidence to HMRC to verify that the allowance has been spent within the guidelines.

A company might decide to pay their employees more than the subsistence allowance from HMRC, or to spend more on hotel rooms than is laid out in the HMRC guidelines. However, after that point, the per diem does become taxable.

Per diem meaning: quick summary

Per diem (or per day) payments cover your expenses while you’re away for business, and they save you from having to create and file an itemized expense report when you return to the office.

Because per diems are tax deductible and not part of your regular income, there are some specific guidelines to ensure they’re only spent on business expenses, and to keep the rates the same across the UK.

The specific amount you receive as a per diem will depend on where you travel, how long you stay, and whether any of your meals are provided as part of the trip. If you have any questions, talk to your manager or company accountants to find out about the specific circumstances of your upcoming trip.

Read more:

• Have you got the right type of travel insurance?
• Should you travel without insurance?
• The best travel money options: cash vs. card
• New legislation impacting your business
• Types of business insurance you should know about
• Read more of our business insurance guides