How to Stay Safe from HMRC
6 November 14 | By: Jas Jhooty
All companies have to pay expenses to their employees in order for business to take place. Surprisingly in this connected internet age a lot of employers still rely on antiquated manual paper based expenses systems. This article explains why there is no excuse these days for businesses of all sizes not to move to a cloud-based expenses system.
Disadvantages of a manual expenses process
There are numerous disadvantages to businesses that continue to rely on paper based expenses capture systems. These include: -
Types of electronic expenses systems
There are two main types of electronic expenses systems available. The first type are the ones that are installed and hosted internally by a large employer. These require Virtual Private Network (VPN) access by employees working remotely and are therefore mainly used once an employee has returned to the office after a business journey. These systems are generally much more expensive than the alternative cloud-based expenses solutions.
Cloud-based solutions are much more attractive as employees can use their mobile devices to complete and save business journey details whilst they are still on the move. The hosting costs are also generally lower than if the employer installs the expenses software on their own internal servers.
Advantages of using a cloud-based expenses system
There are advantages to both the employer and the employee in moving towards a cloud based expenses solution.
Monitoring costs – The employer can obtain an analysis of actual Travel & Subsistence expenditure on a real-time basis. This information can be broken down by department and can provide a much more accurate picture of the true cost of sale.
Efficiency savings – Moving towards a cloud-based expenses system invariably leads to savings in administration costs. Typically a Return on Investment can be demonstrated well within twelve months of implementation.
Accuracy of expenses claims – Your expenses policy rules can be incorporated into an electronic expenses systems. Any claims made above any set limits can be automatically flagged up for review. Also nowadays, the better cloud-based systems integrate with Google Maps for more accurate business mileage capture.
Streamlined process – The more modern cloud-based expenses systems allow for the submission and storage of scanned-in receipts in the Adobe Portable Document Format (PDF). This allows for savings in both paper and office space. Also most business credit card providers can supply data feeds that can be integrated as advances of expenses within online expenses solutions.
Easier data capture – employees really enjoy the facility to be able to save a journey’s expenses details while they are still on the move by using an app on their mobile phone. This facility increases productivity as time will not be wasted when the employee returns to the office while they try to remember the details of their journey.
Better data validation – The better cloud-based expenses solution can be programmed to automatically display the relevant sections of your company’s policies on expenses reimbursement at the point an expense is being claimed.
Faster line manager approval – an online process allows the employee to quickly see how far along the approval process their claim is. Similarly the line manager can quickly send back a claim for amendment if they feel it does not meet with the company’s policies.
Timely expenses reimbursements – Most importantly to the employee, they can see the date when they can expect to receive the payment for their submitted expenses claim.
Effects on a HMRC visit
Adopting an electronic expenses system is usually viewed as a sign of good corporate governance being in place by HMRC when they come to visit. However if you do decide to adopt an online expenses system it is imperative that all of your accompanying corporate policies and procedures are reviewed to ensure that they are up-to-date and relevant to the latest employment tax law.
This is particularly relevant of you are a company falling within Senior Accounting Officer (SAO) legislation . HMRC are currently undertaking an extensive program of holding “Know your Customer” meetings with all SAO companies commencing with the very largest employers. Being able to demonstrate an up-to-date expenses policy along with a quick demonstration of your electronic expenses system is usually enough to satisfy HMRC that your procedures are robust enough to pass a “Know your Customer” meeting.
However there are always exceptions to this general rule. We have recently been consulting with a large employer who had gone to a great deal of time and effort in implementing a state of the art electronic expenses system but who failed to update their expenses policy. Because HMRC concentrate on your employment tax policies and procedures at your “Know your Customer” meeting all of this effort did not prevent a full blown Employer Compliance Review from commencing.
How emTax can help
We fully advocate that all businesses move towards processing expenses electronically, preferably by using cloud based systems. At the same time all of your employment tax policies and procedures should be reviewed to ensure that they are both up-to-date and relevant. Both of these measures taken together will go a long way towards protecting the business from HMRC.
Our consultants can assist you in the review of your current employment tax policies and procedures. All of our consultants are ex-HMRC Employer Compliance Inspectors and also have many years of experience of working as senior managers within the “Big 4” accountancy firms. The only difference between our employment tax advisory service and that which the “Big 4” offers is that our fees are a small fraction of what they charge.
We offer a free initial advisory visit where one of our consultants will go through our PAYE & NIC Audit questionnaire to try to identify any areas of weakness in your current employment tax procedures.
If you are interested in finding out more please do not hesitate to contact us by ringing 0345 548 3680 to see how we can help you.