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Corporate travel requires a range of reimbursable expenses, with companies covering the basic living requirements of their employees while they’re away on business.
However, this can create challenges for finance teams – especially within businesses engaged in regular corporate travel – in managing the high volume of receipts and expenses and making sure staff are reimbursed on time and not left out of pocket.
One strategy commonly used to combat these time-consuming admin processes is to offer per diem rates to travellers. In this guide, our corporate travel experts explain what per diem means in the context of corporate travel and how it benefits businesses…
What is Per Diem?
Per diem – a Latin phrase meaning ‘by the day’ – is an expensing tool that sees employees afforded a total daily allowance to cover necessary costs, including transport, accommodation and food, when travelling for businesses.
It is designed to simplify the expensing process for the employee and the finance team by combining corporate travel expenses under a single allowance, compared with filing individual expenses for each item.
There are guidelines around the amount that can be reimbursed to employees through a per diem scheme – designed to promote compliance and fairness in business rewards – regulated by the government.
Per diem rates may vary between domestic and international travel and may also be offered as fixed or partial payment, covering certain aspects of the trip.
How Does it Work?
Per diem is a strategy used to streamline corporate travel expenses. Instead of employees expensing items individually – which can become complex, especially during longer or more regular business travel – they are afforded a daily allowance for necessary expenses that can be reclaimed in as a single sum.
Businesses must first establish a per diem policy, outlining exactly how much can be expensed and which items the allowance can be redeemed against. This may vary between domestic or international travel, the travel destination and more.
Corporate travellers are then eligible to claim against the agreed per diem rate each day – submitting receipts to the finance team on their return. Instead of reimbursing each receipt individually, the employee claims back the total daily allowance.
What is Included in Per Diem?
Exactly which items or services are included in a per diem scheme is down to both government regulations and the business’ discretion.
Per diem rates commonly include the necessary living expenses for employees while they’re away from home – such as travel, accommodation and food – as well as any business expenditures, such as stationery, software or anything else needed to conduct business.
Within these categories, there will then be limits on exactly how much can be spent on each meal, hotel and more.
Businesses may also introduce unique policies for their employees – for example, regarding alcohol – that may or may not be included within their per diem offering.
What is Required of the Employee?
Per diem policies are designed to improve the corporate travel experience for employees, as well as the finance team, by providing them with a clear budget and spending limit for corporate travel, within which they can plan their trip and individual expenses.
However, this relies on employees fulfilling certain key responsibilities. Firstly, they must understand and work within the business’ agreed per diem policy – not overspending or claiming against any excluded or unauthorised items.
They must also provide all relevant receipts. This typically includes accommodation and travel receipts – to help the business meet any relevant tax regulations – although, they may not always be required to submit food expenses, given they spend within the daily allowance.
Benefits of Per Diem
Per diem rates can provide many benefits for businesses engaged in regular corporate travel, including:
- Streamlining expenses – per diem policies naturally streamline the expensing process, as they require fewer receipts to be submitted and less complexity and confusion regarding spending rules and limits. This is especially beneficial for SMEs engaged in corporate travel, without the resources to manage high-volume expenses.
- Flexibility for employees – providing employees with a pre-agreed daily budget means they can tailor their allowance to their needs and preferences, including dietary requirements, travel needs and more. As long as they do not exceed the limit, they have the freedom to adjust their spending as they prefer.
- Cost control – a pre-determined daily allowance helps businesses stay within reasonable cost limits, as well as supporting financial planning by using the per diem limit to determine monthly corporate travel budgets.
- Supporting the finance team – operating a per diem policy minimises the strain on the finance team by limiting the number of individual receipts filed and expenses reimbursed.
- Compliance – providing education on the business’ per diem policy encourages compliance among corporate travellers, as they know exactly what is expected of them and how much they can claim for reimbursement. This also allows the business to remain compliant with relevant tax regulations.
Tax Implications of Per Diem
As per diem rates are designed to reimburse employees for costs paid for legitimate and reasonable business expenses, they are generally tax deductible.
However, it is important that businesses report per diem allowances in full on their tax returns to prove they remain compliant with tax regulations and the local limits on reimbursements.
Employees who spend within their given per diem allowances will be reimbursed fully, without tax deductions. Expenses that exceed these given limits may be considered taxable income for employees – as they are deemed to be beyond a reasonable and necessary business cost – and therefore, employees will be reimbursed minus tax.
It is therefore also important that employees record and file all business expenses for tax purposes to ensure they are compliant with per diem limits and allowances and are not being unfairly rewarded.
Per Diem in the UK
Unlike some countries, including the US, the UK doesn’t currently have a set per diem limit for domestic business travel. Instead, per diem rates are typically set by each business, based on the location of travel, industry standards and any other policies unique to the business.
However, this doesn’t mean employees can simply spend from an unlimited budget while they’re away on business. Per diem rates are deemed a non-taxable work-related expense – meaning all expenditures must be deemed reasonable and appropriate for corporate travel.
Employees must therefore provide itemised receipts for all expenses, each day, to claim reimbursement. If any of the items exceed the business’ per diem rates – or are deemed to be an unnecessary business expense – the employee may be taxed on the amount, and won’t receive full reimbursement.
International Per Diem
Businesses around the world may have unique rules on per diem rates. For example, in the US, per diem rates are determined by the GSA and include lodging and meal components.
For UK employees, per diem rates vary between countries when travelling internationally for business. This is to adjust for the vastly different cost of living in local regions.
The UK government provides clear guidance on per diem rates for international business travel, which acts as a reference for subsistence costs in different global cities.
Alternatives to Per Diem
Per diem rates are an optional tool adopted by businesses conducting regular corporate travel, to control costs and streamline the expensing process.
But it is not compulsory to offer per diem allowances, and businesses can manage their reimbursable expenses process in any way they prefer – granted they remain compliant with tax regulations.
Some of the common alternatives to per diem rates include standard reimbursable expenses or offering corporate credit cards or direct billing options to employees on corporate travel – removing the need for employees to claim against individual expenses.
Businesses may also offer travel advances – for example, providing a pre-paid card with a limited allowance to travellers – or flat allowances, with set expensing limits for each claim category instead of a broader daily allowance.
The Role of Corporate Travel Management
Corporate Travel Management (CTM) experts help businesses get the most from their per diem policies.
Firstly, experts are on hand to help companies build their wider travel policy – including calculating and implementing per diem rates – and work within these to deliver cost-effective travel. This includes leaning on their relationships with travel providers and extensive knowledge of international travel methods to help businesses secure the best deal in terms of cost and time.
CTM providers are then on hand to deliver expense management and reporting solutions, to keep businesses compliant and employees happy – making sure all expenses are handled in an accurate and timely manner.
Ready to take your corporate travel to the next level? View Good Travel Management’s Levers, designed to personalise your path to cost-efficient travel, or contact our experts today to find out more.
Frequently Asked Questions (FAQs)
- Is per diem on top of salary?
Per diem allowances are afforded to employees in addition to their salary – and are not deducted from their salary or subject to tax as long as they fall within agreed limits.
This is because per diem allowances are deemed to be reasonable compensation for employees working away from home, rather than being classed as a benefit.
- Do I need to pay tax on per diems?
No, employees do not typically pay tax on per diem allowances. This is because they are deemed to be fair compensation for employees working away from home or the office, rather than being a taxable reward or benefit.
However, if per diem allowances exceed agreed limits or regulations, any expenses beyond the limit may be subject to tax. This is to promote tax compliance and fairness in reward policies across businesses.
- Can employees claim food expenses?
Yes, employees can claim food expenses within a per diem allowance. However, there are regulations on exactly how much can be expensed, based on location, time spent away from the office and more. These allowances may also differ between businesses.
- How much can I claim for overnight expenses?
There is no set limit on exactly how much a UK employee can claim for overnight expenses including travel, accommodation, food and more. Businesses typically set their own reasonable limits on the amount an employee can claim in reimbursed expenses – often set at a per diem rate – and will require the employee to provide itemised receipts for tax purposes.
- What is an example of a per diem?
An example of a per diem allowance would be an employee based in London, travelling to Glasgow for a business meeting and staying overnight due to the limited travel options available at the time their work is finished.
In this example, the employer allows a £400 per diem budget for the working day, to cover travel, accommodation and reasonable food and drinks expenses claimed by the employee while away from the office.
- What is the daily subsistence allowance UK?
The UK government provides guidelines for how much employees can claim for food while away from their normal place of work – provided full receipts are submitted alongside each purchase. These limits range from £5 after five hours of travel to £25 for 24 hours of travel.
The full subsistence guidelines can be found on the UK government website.
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