How to survive a HMRC audit of employee expenses
Coping with a HMRC audit is never going to be a pleasant experience for finance professionals. In fact, it can lead to months of stress and uncertainty as tax experts scour through your financial information.
While you can minimise the chances of triggering an audit - by hitting HMRC deadlines and ensuring submissions are immaculate - sooner or later, it’s something every organisation will face.
Around seven percent of HMRC audits are randomly selected and with an increased budget of £900 million, dedicated to tackling fraud and tax evasion, the likelihood of being inspected has increased.
When it does happen, one area the auditors will pay particular attention to is employee expenses. As a notoriously difficult aspect of company finances to control, it provides a rich source of pickings for tax auditors.
So here’s a look at how to get through an audit:
Always Be Prepared
The worst possible time to prepare for an audit is…when you’re facing an audit. Trying to hastily ‘fix’ any problems found with expense records while a HMRC deadline looms, is a recipe for disaster.
The most effective strategy is to put in place an expense management system that provides a state of permanent preparedness. This means accurate monitoring and recording of every claim, combined with effective compliance enforcement.
Automate Expense Management
The best way to ensure auditors have all the expense information required is to use digital expense management. This replaces the traditional paper-based and manual ways of handling expenses with automated digital processes.
Rather than information having to be collated by hand, a system such as webexpenses automatically tracks and records data on every aspect of employee costs. It allows finance teams to submit records with a level of detail that provides reassurance for a tax auditor.
Pay Attention to Petty Cash
While the individual costs may be small, the dangers posed by inaccurate and fraudulent petty cash claims are major. It’s a particular weakspot because so many petty cash systems operate outside of a company’s normal expense checks and balances.
To avoid getting caught out, it’s recommended that petty cash payments are integrated into the main expense management set-up. This is something a system such as webexpenses allows, with petty cash receiving the same level of management and compliance control as any ordinary expense.
Manage Your Mileage
Any inaccurate, incomplete or unbelievable claims for mileage costs are liable to be uncovered by an expert auditor. It’s something that was hard to avoid in the past with finance teams reliant on employee ‘guesstimates’ of distances travelled.
It’s a problem that’s solved by digital systems that provide employees with a smartphone app which digitally tracks the exact route and distance of any business-related road journey.
Keep Control of Categories
The administrative hassle of adding new expense categories creates a tendency for multiple expense types to be classified as ‘miscellaneous’. This lack of accurate information sets alarm bells ringing for tax inspectors.
The problem is a legacy of paper-based systems which make adding new categories complicated and time consuming. With a digital system, it’s an effortless task - allowing any amount of categories to be created to ensure they accurately reflect each cost.
With smart use of technology and the right approach, the pain caused by a HMRC audit can be minimised. An effective digital set-up provides the tools for finance professionals to be identify problems - not a HMRC auditor.
Webexpenses provides a faster, smarter and safer way to manage employee expenses. Find out how it can help your clients by requesting a free demo.