The short answer: can you pay the night-out allowance tax-free?
Yes, within limits. If your driver is genuinely away from home overnight on a job, you can pay a round-sum night-out allowance free of tax and National Insurance contributions (NIC) up to a nationally agreed figure, provided you hold an HMRC approval notice and you can show the driver was actually away. Pay above that figure, or pay it without the approval and records, and HMRC can treat the money as ordinary wages, with tax and NIC on top and interest and penalties behind it.
That is the whole game with haulage payroll. The same £26 or £35 a night is either a clean, tax-efficient payment that helps you keep drivers, or a backdated bill waiting to be found in a compliance check. The difference is paperwork, not the amount. A heavy goods vehicle (HGV) operator who sets this up correctly pays drivers more in their pocket for less cost to the business, which in a market this short of drivers is a genuine edge.
The rest of this guide walks through the exact 2026/27 numbers, what HMRC needs to see, and the one rule that trips up more operators than any other: the night-out allowance cannot be used to prop up a driver's basic pay to the minimum wage.
How much is the HGV night-out allowance in 2026/27, and what's the sleeper-cab rule?
The approved amount HMRC will accept as doing no more than reimburse an overnight stay is £34.90 a night. That figure has stood since 1 January 2013 and is set out in HMRC's own guidance at EIM66110. It comes from the industry-wide rate negotiated with the Road Haulage Association (RHA), which HMRC adopts as a reasonable benchmark.
Here's the part operators miss. Where the lorry has a sleeper cab and the driver sleeps in it, HMRC only accepts 75 percent of that figure as tax and NIC free, which works out at £26.20 a night. The logic is that a driver with a bed in the cab does not incur the full cost of a hotel room, so a chunk of the round-sum figure would be profit rather than reimbursement. The sleeper-cab restriction is spelled out in EIM66130. If your fleet runs sleeper cabs and you have been paying the full £34.90 tax-free, you have an exposure sitting in your payroll right now.
You can pay more than £26.20 or £34.90 if you want to. The excess is simply taxable and NIC-able through the payroll unless you have agreed a higher bespoke rate with HMRC based on your own evidenced costs. Plenty of operators pay, say, £30 a night to a sleeper-cab driver: £26.20 of it runs free of tax and NIC, and the remaining £3.80 goes through as normal pay. That's fine as long as it is processed correctly.
What you need in place: the approval notice and the checking system
Paying the scale rate free of tax and NIC is not automatic. To do it without recording and checking a receipt for every single night, an employer has to apply to HMRC for an approval notice and then operate a checking system, as HMRC's employer guidance at EIM66205 sets out. In practice that means three things you must be able to evidence.
- An approval notice from HMRC. You apply to pay the industry bespoke rate; the notice lasts up to five years and then has to be renewed. Without it, the round-sum payment is taxable.
- A qualifying journey. The driver has to be genuinely away overnight because of the job. A driver who tramps home is not entitled to the tax-free night-out, however the rota describes it.
- A checking system. You need a routine that confirms the nights actually happened, tachograph data, digital run records or signed night-out sheets, and you have to sample-check them rather than pay the allowance blind.
None of this is heavy once it is set up. The trouble is that a lot of yards have been paying "nights out" for years on custom and practice, with no approval notice on file and no checking beyond the traffic office's memory. That is exactly the shape of thing an HMRC employer compliance visit is built to find.
The trap: the night-out allowance does not count towards the minimum wage
This is the single most expensive misunderstanding in haulage payroll, so read it twice. For National Minimum Wage (NMW) purposes, a night-out allowance is treated as reimbursement of an expense, which means it is stripped out of pay before the minimum wage is worked out. HMRC's manual at NMWM09170 is blunt about it: a payment for expenses does not count towards minimum wage pay, and slapping the label "allowance" on it changes nothing.
So a driver's basic hourly pay has to clear the National Living Wage (NLW) of £12.71 an hour, in force from 1 April 2026, entirely on its own. You cannot pay a driver £11.50 an hour and wave the night-out money at the shortfall. If the basic rate is below the floor, you have an underpayment, full stop, and the tax-free nights out make it worse rather than better because they are excluded from the calculation.
Salaried drivers get caught here too. A fixed weekly wage divided by the hours actually worked, including waiting and loading time that counts as working time, has to stay above £12.71. In a heavy week that number moves. And drivers' hours are capped: under the Road Transport (Working Time) Regulations 2005, a mobile worker averages no more than 48 hours a week with no opt-out, can never exceed 60 hours in a single week, and if they do night work their working time is capped at 10 hours in any 24-hour period. You have to keep those records for two years, and they are the same records HMRC will reach for when it checks whether the wage floor was met.
What paying it correctly is actually worth
Getting the night-out right is not just about avoiding a bill; it is a real saving that shows up on both sides of the pay slip. Take a driver spending around 140 nights away in a year at £26.20. That's roughly £3,668 flowing to the driver. Paid the right way, as an approved tax and NIC free allowance, every penny of it lands in the driver's hands and the business pays no employer National Insurance on it.
Now run the same money through as ordinary taxable wages. The employer pays secondary Class 1 NIC at 15 percent on earnings above the £5,000 secondary threshold (the 2026/27 employer rates and thresholds), so £3,668 of extra wages costs about £550 a year in employer NIC per driver. The driver, meanwhile, loses roughly 20 percent income tax plus 8 percent employee NIC on it, so around £1,027 a year is taken off what would otherwise be tax-free money in their pocket.
Across a ten-truck fleet, the employer NIC saving alone is about £5,500 a year, and the drivers between them keep something like £10,000 more than they would if the same nights out were run as pay. In a labour market where drivers move yards for the price of a tank of fuel, that gap is a retention tool, not just a tax point.
One more win most operators leave on the table: the Employment Allowance. Unlike many care providers, who are blocked by the public-sector restriction, a commercial haulier can usually claim the £10,500 Employment Allowance, which wipes out the first £10,500 of the year's employer NIC bill. It is claimed on the payroll rather than handed over automatically, so it is worth confirming on the first pay run of each tax year.
Where haulage payroll goes wrong
Almost every problem we see in this area comes from one of four habits, and none of them look like a problem until HMRC is sitting across the desk.
The first is labelling wages as an allowance to dodge NIC. If a payment is really part of the driver's reward for the job rather than reimbursement of a genuine overnight cost, calling it a "night-out allowance" does not make it tax-free, and it still cannot be counted towards the minimum wage. HMRC looks at the substance, not the label.
The second is the missing approval notice. Paying the round-sum rate free of tax without HMRC's approval and a checking system means the payments were never validly tax-free, and a compliance officer can go back several years. The third is the sleeper-cab rate: paying £34.90 to a driver who sleeps in the cab, when only £26.20 is allowed, leaves the difference exposed on every night, for every driver, for every year it has run.
The fourth is the wage floor. Because the nights out are excluded from the minimum wage sum, a basic rate that looked "fine, they earn well over the minimum with their nights out" can be an underpayment once the allowance is stripped away. Minimum wage penalties run to 200 percent of the arrears, on top of paying the arrears themselves and being named publicly, so this is not a rounding error. A specialist who runs the driver payroll and reconciles it to the tachograph data catches all four before they compound.
Here is how the three common approaches to running driver payroll actually compare:
| What your fleet needs | DIY / software | Generic accountant | LOYALS specialist |
|---|---|---|---|
| Applies the correct sleeper-cab night-out rate (£26.20) | ✗ You self-classify | ● If asked | ✓ Built into onboarding |
| Sets up the HMRC approval notice and checking system | ✗ | ✗ | ✓ Applied for and documented |
| Tests basic pay against the £12.71 wage floor every period | ✗ | ● | ✓ Checked each pay run |
| Reconciles nights out to tachograph and run records | ✗ | ✗ | ✓ Reconciled monthly |
| Confirms the Employment Allowance claim | ● | ● | ✓ First pay run of the year |
| Open Mon to Sat for a driver-dispute or HMRC letter | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
This is why most operators running driver payroll move from generic bookkeeping to a transport specialist once the fleet passes a handful of trucks.
What this means for you: what to check before your next pay run
If you run drivers who spend nights away, a short list of checks will tell you whether your payroll is clean or carrying risk.
- Find your approval notice. If you cannot put your hand on an HMRC approval notice for the industry night-out rate, you are probably paying it on custom and practice, and it needs regularising.
- Check the sleeper-cab rate. Any driver who sleeps in the cab should be on the £26.20 tax-free figure, not £34.90. Fix it going forward and take advice on the period behind you.
- Test basic pay against £12.71. Strip the nights out entirely and confirm the basic hourly rate, and any salaried rate divided by real hours, clears the National Living Wage on its own.
- Keep the working time records. The 48-hour average, 60-hour cap and night-work limit records have to be kept for two years, and they double as your minimum wage evidence.
- Confirm the Employment Allowance. Make sure the £10,500 claim is switched on for the tax year if you are eligible.
- Reconcile to the tachograph. Your nights-out payments should tie back to the run data, not to the traffic office's memory.
None of this is complicated once someone owns it. LOYALS runs the whole loop for haulage operators: the driver payroll, the night-out scheme and approval, the minimum wage checks and the monthly numbers that show what your drivers actually cost. If you would rather know your payroll is right than hope it is, you can check your position in a free call with LOYALS.