This article provides an overview of allowances and expenses paid to United Kingdom (UK) armed forces personnel and deductions from their income.
2.0 Cash and Non-Cash Benefits
Examples of the cash and non-cash benefits available to individuals.
2.1 Cash Benefits
In addition to the regular pay that personnel receive from their employer, the UK Ministry of Defence (MOD), they will also receive some pay from the MOD for the costs they incur as a result of doing their job.
The MOD does this by:
- Paying the individual a cash allowance;
- Reimbursing the individual for expenses, if they have paid for these themselves; and/or
- Paying the cost directly to the supplier of the services and/or goods.
Details can be found in Joint Service Publication (JSP) 752 – Tri-Service Regulations for Expenses and Allowances (see Useful Publications & Links Section below). All the allowances and expenses that an individual might be entitled to receive are set out in this document.
2.2 Non-Cash Benefits
Personnel may also receive various non-cash (employment) benefits. For example, accommodation for the individual and their family, and the costs of the utilities due in respect of this accommodation.
Details can be found in JSP 464 – Tri-Service Accommodation Regulations, known as TSAR’s (see Useful Publications & Links Section below). JSP 464 is the definitive policy for the provision of service family accommodation, single living accommodation and the substitute equivalents.
3.0 Paying Tax & National Insurance Contributions on Allowances & Expenses
Some of the allowances and expenses that an individual will receive from the MOD are specifically exempt from tax and National Insurance contributions (NIC).
This is either by law or because of special agreements between HM Revenue & Customs (HMRC) and the MOD.
In other cases, where there is a tax and/or NIC liability, the MOD have decided that they should pay this on the individual’s behalf. The MOD pays this tax/NIC directly to HMRC at the end of each tax year.
There are a few allowances where the individual does have to pay the tax/NIC themselves, and the reader can find out more about these and how to pay the tax/NIC below.
4.0 How the Individual Pays Tax & NIC on Allowances when Responsible for These
The usual way that to pay the tax and NIC due on these allowances is through the payroll. The allowance is included in the individual’s payslip in the same way that their basic pay is, and tax and NIC is automatically calculated and deducted.
If an individual has received a loan from the MOD to help them buy a property for the individual and their family to live in, the individual does not have to pay interest on this loan.
If this loan, together with any other loans or advances that the individual receives from the MOD is more than £10,000, a taxable benefit arises.
The Joint Personnel Administration Centre (JPAC) calculates the benefit at the end of each tax year using HMRC’s official rate of interest for beneficial loan arrangements and report the amount to HMRC.
For example (illustration purposes only):
- Assume that for the whole of the tax year an individual has a Long Service Advance of Pay/Forces Help to Buy (LSAP/FHTB) of £25,000 and no other loans or advances.
- HMRC’s official rate of interest for the tax year is 3.00%.
- The value of the benefit is £25,000 x 3.00% which is £750.
- This is not the amount of tax the individual owes.
- This benefit, £750, is non-cash income and how much tax the individual will have to pay depends on their highest tax rate.
- If their highest tax rate is 20%, they will pay tax of £750 x 20% which is £150.
- Individuals do not have to pay NIC on the benefit.
HMRC will collect the tax in various ways:
- If the individual submits a self-assessment tax return, they will need to include the benefit in it, and the tax due will form part of their self-assessment tax payment.
- If individual does not submit a self-assessment tax return, HMRC will include the interest benefit as part of the individual’s income when they prepare a P800 reconciliation.
- HMRC will either ask the individual to pay any tax due then or include the underpayment in a future year’s PAYE code.
Details of the official rate of interest can be found in the Useful Publications & Links Section below.
5.0 Claiming for the Cost of Laundering Uniform
If an individual launders their uniform, you can claim tax relief for the costs of this.
HMRC came to an agreement with the MOD for a new annual Flat Rate Expense Allowance (FREA) for laundering uniforms that covered all tax years up to and including 2013/14 for ratings and other ranks.
The FREA was backdated from 06 April 2008, although if an individual was employed by the MOD at March 2014, any backdated refund due was made to them through payroll.
Since then the allowance has been given every pay day through payroll and the only claim an individual need to make is if they want to claim for costs in excess of the standard allowance (Royal Navy £80 and £100 for the British Army, Royal Air Force, and Royal Marines).
If an individual wishes to make such a claim they will need proof of the costs and then make a claim using form P87 (see Useful Publications & Links Section below).
6.0 Direct Refunds of Travel from HRMC
If an individual uses their own car for business travel the MOD forces will reimburse them at the motor mileage allowance (MMA) rate. This MMA rate is lower than HMRC’s approved mileage allowance payment (AMAP) rate.
Individuals can claim tax relief on the difference between the AMAP rate and the MMA rate from HMRC.
Individuals might also be able to make a claim if they receive MMA payments in respect of home to duty travel (HDT) or get you home travel (GYH(T)). Both HDT and GYH(T) are always paid on a tax-free basis because of the special circumstances of military service; an employee of any other enterprise would not be able to be paid or reimbursed for similar travel on a tax-free basis.
If an individual is working at a temporary workplace, as defined by HMRC, they might be able to make a claim for tax relief as outlined above.
HMRC are aware that there are some companies offering to help, for a fee, service personnel to claim this relief and some of the claims may not be valid. Individuals should check with the MOD intranet that their claim is valid.
A claim might also be possible if the individual is using public transport and the MOD is not reimbursing them for these costs.
It is important that individuals ensure that any claim they make is valid. HMRC will process the claim, without checking it, and send the individual a refund. HMRC will then check the claim later on and, if they believe an individual’s claim is not valid, they will send a demand to repay the refund back to them.
7.0 What Deductions can be taken from an Individual’s Pay?
In addition to the pay and allowances that individuals receive, there are also deductions taken from their total cash remuneration.
Normally these deductions are taken from net pay (net pay is gross pay plus allowances minus tax and NIC).
The main items to consider are accommodation and food but the article mention other deductions too.
The basis on which the MOD provides the individual with accommodation and associated services is set out in JSP 464.
Service personnel do not have to pay any tax in respect of the accommodation provided to them as it is job related and therefore exempt from tax.
However, the individual must make a contribution towards the cost of the accommodation. Details of these contributions, generally known as charges, are set out in Chapter 9 of JSP 754 ‘Tri-Service Regulations for Pay and Charges’. The accommodation charge can include a contribution towards:
- Service Family Accommodation (SFA):
- Garage (or similar).
- Single Living Accommodation (SLA):
- The above plus a contribution towards the cost of fuel and light.
If an individual lives in SFA and gas and/or electricity is provided via a MOD supply then the individual will have to pay a separate fuel and lighting charge. If the utility supplier invoices the property separately the individual will settle these bills directly.
In addition to the accommodation charge, individual will make a Contribution in Lieu of Council Tax (CILOCT). The amount of this contribution is determined by the MOD.
JPAC deduct these charges from net pay.
Individuals may pay a Daily Food Charge (DFC) in respect of food provided to them at certain locations.
JPAC deduct these charge from net pay.
7.3 Other Deductions
Individuals may choose to contribute voluntarily to various schemes.
If tax relief is available, for example under the Payroll Giving Scheme, then JPAC deduct the payment from gross (before tax) pay and this means that the individual receives the tax relief automatically when they make the payment.
If an individual has taken out a loan under either the Forces Help to Buy (FHTB) or the Long Service Advance of Pay (LSAP) scheme then they will also be paying back this loan in accordance with the rules of the scheme.
JPAC deduct these repayments from net pay.
8.0 Useful Publications & Links
- Joint Service Publication (JSP):
- JSP 464: Tri-Service Accommodation Regulations (TSAR’s):
- JSP 464: Service Family Accommodation (SFA) & Substitute Service Family Accommodation, Volume 01, Part 01 – Directive (Version 17) (2019-07-01).
- JSP 464 – Service Family Accommodation (SFA) & Substitute Service Family Accommodation, UK & Overseas, Volume 01, Part 02 – Guidance (Version 09) (2019-04-01).
- JSP 464 – Single Living Accommodation & Substitute Service Single Accommodation, Volume 02, Part 01 – Directive (Version 10) (2019-07-01).
- JSP 464 – Single Living Accommodation & Substitute Service Single Accommodation, Volume 02, Part 02 – Guidance (Version 09) (2018-06-04).
- Available @ https://www.gov.uk/government/publications/jsp-464-tri-service-accommodation-regulations-tsars.
- JSP 752: Tri-Service Regulations for Expenses and Allowances.
- Version 39, updated July 2019.
- Available @ https://www.gov.uk/government/publications/tri-service-regulations-for-expenses-and-allowances-jsp-752.
- JSP 754: Tri-Service Regulations for Pay and Charges.
- JSP 464: Tri-Service Accommodation Regulations (TSAR’s):
- Guide to Expenses and Allowances for Service Personnel.
- Issue 01, July 2018.
- Available @ https://www.gov.uk/government/publications/guide-to-expenses-and-allowances-for-service-personnel.
- Official Rate of Interest: https://www.gov.uk/government/publications/rates-and-allowances-beneficial-loan-arrangements-hmrc-officialrates.
- Laundry Allowance Claims from Ratings & Other Ranks in the MOD: https://www.gov.uk/guidance/laundry-allowance-claims-from-ratings-and-other-ranks-in-the-ministry-of-defense.
- P87 (Claim Income Tax Relief for your Employment Expenses): https://www.gov.uk/government/publications/income-tax-tax-relief-for-expenses-of-employment-p87.
- Pay 16: The Armed Forces Pay Model.
- Available @ https://www.royalnavy.mod.uk/~/media/files/cnr-pdfs/rates%20of%20pay%202014%20optimised.pdf.
- Revised March 2016.