International expenses management specialist Concur has released a series of myth-busting whitepapers for businesses that need advice about expenses. This digest for our Business Tax Library summarises some of the key points.
According to Concur, the most common expenses ‘hotspots’ in the UK are driven by HMRC’s risk-based approach to compliance which focuses on areas where companies are least likely to pay the correct amount of tax.
“Focus groups within HMRC exist to concentrate on these areas, to support companies of all sizes in their tax paying efforts. The smaller the business, the less likely there will be an expert on specific tax areas within the organisation,” said Matt Lewis, director of compliance at Concur.
Myth: Paying expenses can supplement your salary
This is wrong, according to Concur, as expenses payments can only be tax-free if they meet HMRC’s ‘golden rule’: “An employee may deduct expenses incurred wholly, exclusively and necessarily in performing their duties.”
The wording is clear enough, but there are enough grey areas that the principle is regularly tested at tribunal.
Expenses payments to employees that don’t meet the wholly and exclusively rule should be reported to HMRC as part of their P11D.
Examples of potential tax-free expenses include travel, accommodation, protective clothing, training and charitable donations. Lewis explains: “Employee reimbursement is about what an employee has paid out for on behalf of the employer, in the performance of their duties, and these costs are reimbursable. Employee costs generally need to be receipted, but there should be no profit element; expenses reimbursement processes should not enable employees to make a profit.”
Myth: You must keep original paper receipts to meet HMRC requirements
You don’t necessarily need to do this, as VAT can be recovered without the original paper receipts. It’s also possible to collect digital and electronic image copies of the receipts.
However, they must be clearly legible, easily accessible, printable and not editable. It’s worth investing in a good digital process for submission and approval of receipts, as they can be audited this way.
Myth: all company cars are subject to taxation
There are two classes of company cars where you pay absolutely no tax: pool cars and disability cars, provided they meet certain conditions. HMRC looks on providing cars to employees with a disability as a generosity, although if it is subject to private use, must be reported to HMRC
Myth: You can pay any mileage allowances you want
You can do this, according to Concur, as long as you pay tax on it. Only Approved Mileage Allowance Payments (AMAP) are tax-exempt. These are payments a company makes to an employee for expenses related to the use of their own vehicle for journeys that form part of their work duties and journeys for their attendance at a temporary workplace. Standard mileage rates apply: currently it's 45p a mile for the first 10,000 business miles per vehicle, and then it drops to 25p for any subsequent mileage. AMAP only applies to one vehicle per person per year
Myth: You can reclaim VAT on all travel expenses
If you pay your employee a flat rate for travel and subsistence costs, you cannot reclaim all of the VAT. There are also strict guidelines in what constitutes as an employee for the purposes of VAT, too. You can reclaim VAT on people directly employed by you, including directors and the self-employed, but not on shareholders or pensioners.
"VAT and tax on expenses isn’t usually the biggest cost or reclaimable benefit to your business, but if you have a robust process in place and can demonstrate to HMRC that you’re managing it then you increase the chances of being viewed as a low priority to be reviewed and audited, as your risk profile to HMRC can be significantly reduced," Lewis advises.
Myth: Complying with HMRC guidelines is all I need to do
Not true, Concur argues, as this will only keep HMRC happy, not your bottom line. As a developer of expenses management systems, the company argues in favour of adopting a more pro-active travel expense policy to ensure your company is compliant and efficient.
“Companies need to determine the level of spend that is required on business travel to achieve their business objectives, and this then presents them with the starting point to create guidelines on how the company spends its money on expenses,” says Lewis.
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