22 July 15 | By: Jas Jhooty
As payroll professionals you’ll know exactly the financial impact of the staff expenses bill on your company’s bottom line. Legitimate and necessary as they may be, organisations are spending millions of pounds each year covering staff expenses. Proven expenses technology can save thousands of pounds spent on expenses by creating more accurate claims, particularly around mileage, but it can’t do it alone. The best expenses technology deployments are supported by the very best expenses policies. Unbelievably, according to 2013 research from Quocirca, around one in four UK companies do not have an expenses policy. Also many other companies who do have expenses policies have not revisited them to update them for many years.
An expenses policy provides employees with a high level view of what is expected and specifically guides the employee on what is and isn’t an acceptable expense for the company; and in certain circumstances for their job role or department. An expenses policy also provides the practicality to how claims can be made and the company’s procedure of adhering to policy, processing an expense and monitoring the claims.
For the company, an expenses policy can save money and improve efficiency. How? Well by implementing an expenses policy so that all of the company’s employees know where they stand, what they can and can’t claim for and to what limit. For mileage, one of the largest areas of conflict, the policy can explain how and why journeys are routed a specific way [usually the shortest, as opposed to quickest, distance between two locations]. This reduces the number of conflicts that can occur when an employee has an expense, which isn’t approved, it reduces the time spent checking the expense and having it authorised by a Manager or accounts team and it also minimises the potential for low morale and poor attitudes that can occur as the result of conflicts.
Financially an expenses policy cuts the cost base of doing business by providing a robust expenses control function. It also throws out the era of ‘guesstimates’ loopholes and fiddles that may have occurred in the past. The grey areas are gone and there is a clear mark between acceptable and unacceptable. Also think about an employee conducting business travel where they are required to stay overnight – the employee may have previously booked into a high standard of accommodation when an equally good business orientated accommodation chain provides the same service at a substantially different price. With a limitation placed on the expense the employee will need to change their habits to become in line with policy.
The best way is to begin by putting together a list of what is a legitimate business expense that suits the sector, industry, ethos or image of your company.
Once this list is prepared your company needs to start thinking about where existing staff spend typically falls – mileage, subsistence, subscriptions, entertainment etc. – and what the average costs of these are; consider whether they match up to the company’s expectation. It is important to get these written down along with your list – Why? Well providing your employees with an expenses policy is the first step, but the next question you would inevitably be asked is “…so how much can I spend?”
When all of this information is gathered together you will find that the majority of the work is already done. All that’s left to do is write the policy and enforce it. So before we start here’s a few tips:-
There are a few more things as a company you need to be aware of; firstly The Bribery Act 2010 – the legislation is relevant to expenses as it states a business should ensure claims are reasonable and justified; leaving no room for expenses or payments to be perceived as bribes. Having an expenses policy allows a company to monitor and record its expenses.
Secondly the company procedure for expenses; how will an employee have their expense approved and to whom should they hand their receipt or documentation? This is quite dependent upon the size of the company, a standard procedure would be: employee, line manager, accounts, payroll/HR.
Thirdly what to do with your receipts? On March 31st 2014 a Software Europe and CIPP (Chartered Institute for Payroll Professionals) investigation into HMRC’s paper receipt policy led to confirmation that UK businesses no longer need to keep hard copy receipts for employee expenses in storage for any reason, provided that electronic copies exist on their financial IT systems.
HMRC will not, it has confirmed, require paper as a back-up to electronically stored copies. Using an electronic expenses system, such as Expenses from Software Europe: to manage staff receipts for expenses such as mileage and subsistence is now recognised by HMRC as standard practice.
As experts in employment tax, our consultants can help you to devise an up-to-date expenses policy. We can also assist you in designing process maps incorporating best practices on how to police the expenses policy. In our experience such process maps have proven to be an invaluable defence at a HMRC Know your Customer meeting.
This article has been written in conjunction with Software Europe Ltd