What is per diem?
Per diem (pronounced "per dee-em") is a Latin phrase meaning "per day." In a business context, it refers to a fixed daily allowance that an employer pays to employees to cover expenses while travelling for work. Instead of asking staff to pay upfront and submit receipts for every coffee and taxi, companies set a flat per diem rate for meals, accommodation, and incidental costs.
The per diem meaning is straightforward: it is a set amount of money allocated each day to cover the costs of being away from the office. In the UK, this type of daily allowance is guided by HMRC benchmark rates, which set how much companies can pay without triggering tax obligations.
Key takeaways
- Per diem is a fixed daily allowance for employees travelling on business. It covers meals, accommodation, and incidentals instead of requiring receipt-by-receipt reimbursement.
- In the UK, HMRC sets benchmark subsistence rates that determine how much can be paid tax-free, based on journey duration rather than actual spend.
- Payments within HMRC's rates are tax-free for employees and require no P11D reporting. Anything above the benchmark is treated as taxable earnings.
- For finance teams, per diem cuts admin significantly: no receipts to chase, predictable travel budgets, and fewer expense disputes.
How does per diem work?
When your company uses a per diem system, employees receive a pre-agreed daily allowance for each day of business travel. The employee can spend that allowance however they choose within the allowed expense categories. If they spend less, they may keep the difference, depending on company policy. If they spend more, they cover the extra themselves.
This approach removes the need for employees to collect and submit individual receipts for every meal or minor purchase, which makes bookkeeping↗ significantly easier for finance teams.
What does per diem cover?
Per diem expenses usually fall into three categories:
- Meals: Breakfast, lunch, dinner (often referred to as a meal allowance)
- Accommodation: Hotel or lodging costs (sometimes handled separately from meal allowances)
- Incidentals: Tips, small service fees, and other minor travel-related costs
The exact breakdown depends on company policy. Some businesses use a single combined rate, while others set separate per diem rates for meals and accommodation.
Per diem vs. expense reimbursement
Per diems and traditional expense reimbursement serve the same purpose, but they work quite differently:
For businesses looking to reduce the admin burden of managing out-of-pocket expenses↗, per diem allowances offer a cleaner, more predictable alternative.
Per diem rates in the UK
UK per diem rates are guided by HMRC's benchmark subsistence rates. These rates, also known as scale rate payments, set the maximum daily meal allowance an employer can pay employees tax-free during business travel. If you are looking for the latest per diem rates UK 2026 figures, these are the current HMRC benchmarks.
HMRC subsistence rates
HMRC publishes scale rate payments that employers can use without needing to check individual receipts. The key per diem rates UK 2026 for domestic travel are based on qualifying journey duration:
- 5+ hours: £5
- 10+ hours: £10
- 15+ hours (and ongoing at 8pm): £25
- Late evening supplement: an additional £10, payable only when the £5 or £10 rate applies and the qualifying journey extends past 8pm
- Breakfast: £5 based on HMRC benchmark guidance (when the employee leaves home earlier than usual and before 6am, and incurs a cost on breakfast)
- Overnight stay (accommodation + meals): Rates vary and may be agreed with HMRC through a bespoke arrangement
The late evening supplement cannot be added to the £25 rate. The £25 rate already covers journeys of 15 or more hours that continue past 8pm, including provision for an evening meal.
These are benchmark figures. Your company can apply to HMRC for a bespoke scale rate payment if your actual costs consistently differ from the standard rates.
Overseas per diem rates
For international business travel, HMRC publishes country-specific overseas subsistence rates. These HMRC overseas subsistence rates reflect the cost of living in different destinations and are updated periodically.
Rates vary significantly by location. HMRC per diem rates for major business destinations like Paris, New York, or Tokyo are considerably higher than domestic UK rates, reflecting local meal and accommodation costs. You can find the full list of overseas rates on the GOV.UK website.
Is per diem taxable?
This is one of the most common questions about per diems, and the answer depends on the amount paid.
Per diems within HMRC benchmark rates are not taxable. The employee does not need to report them as income, and the employer does not need to pay National Insurance on them.
Per diems that exceed the benchmark rates are treated as earnings. The excess amount is subject to income tax and National Insurance. Employers must report any payments above the benchmark on the employee's P11D form.
To keep things simple, most UK businesses stick to HMRC's published subsistence allowance rates or agree bespoke rates with HMRC in advance. This way, the daily allowance stays tax-free for the employee and straightforward for the employer's bookkeeping↗.
Benefits of using per diem
Switching to a per diem system brings clear advantages for both the business and its employees:
- Simpler expense management: No more chasing receipts or processing individual expense claims. A fixed daily allowance cuts admin time dramatically.
- Budget predictability: You know exactly what business travel will cost before a trip starts, making it easier to allocate budgets by cost centre↗.
- Less admin burden: Finance teams spend less time reviewing, approving, and reconciling individual expense reports.
- Employee convenience: Travellers get a clear subsistence allowance without the hassle of saving every receipt and filling out lengthy expense forms.
- Fewer disputes: A clear per diem policy with a transparent, standard rate means less back-and-forth about what counts as a reasonable expense.
Per diem example
Here is how per diem pay works in practice for a UK business traveller:
Scenario: Sarah, a sales manager, travels from London to Edinburgh for a two-day client meeting. Her company uses HMRC's benchmark scale rate payments.
- Day 1: She is away for over 10 hours and still working at 8pm. Her base rate is £10 (10+ hour journey). Because the journey extends past 8pm, she also qualifies for the £10 late evening supplement. Total: £20
- Day 2: She is away for over 5 hours and returns in the afternoon. Total: £5
- Total per diem for the trip: £25.
Sarah receives this as a tax-free subsistence allowance with no need to submit meal receipts. Accommodation, if needed, would be handled separately.