PAYE

VAT

Record Keeping

WFH Allowance

Mileage

Per Diem

If a business’s annual turnover reaches the VAT threshold, they must register for VAT and charge VAT on its sales. They can also reclaim VAT on certain business expenses.

The current VAT rates in the UK for 2025/26 are: 

What can you reclaim VAT on? 

You can generally reclaim the VAT paid on goods and services for your business. If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT (such as reclaiming VAT on travel expenses like fuel costs). 

A PAYE Settlement Agreement (PSA) allows businesses to make one annual payment that covers any tax or National Insurance contributions that are incurred through minor, irregular, or impracticable expenses or benefits to your employees.  

If you get a PSA, you will not need to: 

• Run these items through your payroll to work out tax or National Insurance, 
• Include them in your end-of-year P11D forms, 
• Pay Class 1A National Insurance on them at the end of the tax year—you will pay Class 1B contributions as part of your PSA. 

The expenses you include in your PSA must fit under three categories: minor, irregular, or impracticable.  

The deadline to apply for a PSA is 5 July following the first tax year it applies to. For example: for the tax year 2025-2026, you need to apply for your PSA by 5 July 2026. 

Per diem (also known as subsistence allowance) is a daily allowance provided to employees to cover expenses such as meals, accommodation, and travel costs when they’re away on business. It simplifies the reimbursement process by offering a fixed amount rather than requiring itemised receipts for each expense.  

HM Revenue and Customs (HMRC) allows these claims to cover necessary, business-related expenses, provided they meet specific guidelines and are not part of the employee’s regular, everyday costs.  

You can reimburse employees with a set amount of cash to pay for some common business expenses like travel and meals, these are known as ‘scale rate payments’. If you provide an exempt scale rate payment, you do not have to report these per diems to HMRC or pay tax on them.  

HMRC provides specific guidance on what employers can pay tax-free to employees who work from home, and what work from home allowance employees can claim directly.

Employers can pay employees up to:

• £6 per week (£26 per month) tax-free, without requiring evidence of costs.
• Higher payments are allowed if the employee can provide evidence of actual additional costs.

This is to cover reasonable additional household expenses, such as heating, electricity, or broadband, incurred because they work from home.

These payments are exempt from Income Tax and National Insurance contributions, as long as:

• The employee is working at home because of work requirements, not purely by personal choice.
• The amount does not exceed the home working allowance HMRC limits (or is supported by evidence if higher).

You must keep records that clearly show your business income, expenses, and all figures reported to HMRC. These records must be kept to a standard which will enable the person to make a correct and complete return. While there is no fixed format required, the records must contain all necessary information and be accessible. 

If you fail to keep proper records, HMRC may charge penalties. 

Streamlined Energy and Carbon Reporting (SECR)

From July 2025, businesses are required to provide more detailed information about your sustainability practices and climate related risks. 

This means if your business meets certain criteria, such as having a significant turnover (exceeding £36 million) and employee count (at least 250), you’ll be required to report on your carbon emissions.

You’ll need to:

• Track your carbon footprint: monitor your direct emissions (Scope 1) and indirect emissions from purchased energy (Scope 2).
• Assess your supply chain: evaluate the carbon footprint of your suppliers and consider ways to reduce emissions throughout your supply chain (Scope 3).
• Set reduction targets: establish clear targets for reducing your carbon emissions and develop a plan to achieve them. 

Mileage reimbursement is available in the UK for employees using their personal vehicle for business purposes, covering fuel, maintenance, and insurance.

Mileage Allowance Payments (MAPs) are how much pay an employee receives for using their own vehicle rather than a company car. The approved MAPs, or AMAPs, are calculated by multiplying the approved rate by the business miles driven.  

The approved rate provided by HMRC varies depending on the mode of transportation and cumulative business miles travelled. 

Approved Mileage Rates HMRC 

In the UK, employees can reclaim VAT on mileage expenses. The advisory rate varies based on the vehicle: the type of fuel (petrol, diesel, or LPG) and the engine size. 

Advisory fuel rates: