Expense policy jargon debunked
Is it time to update your company expenses policy? If you’re planning on giving yours a bit of a facelift, then this is as good a time as any to make sure you get rid of any jargon and make sure everything is crystal clear for everyone.
A confusing expenses policy can cause more problems than it solves. And no one wants to have to deal with rejected expenses claims. A bit of clarity and a plain English approach can help your staff to avoid making mistakes – especially when these can so quickly turn into battles about fairness.
A common area of confusion is what constitutes a ‘business expense’ and what is in fact a ‘private expense’ which should be covered by the employee.
It sounds simple but the problem is that without defining exactly what is included in each category, it is left to individual interpretation. And from there onwards, the road to confusion lies.
Consider these examples:
- An employee uses their company car to go to client premises but incurs a parking ticket because the meeting overran by an hour. Your employee was facilitating the meeting which involved three senior client contacts who arrived late. Once the meeting was underway, it was not appropriate to then leave for 30 minutes to go back to the vehicle. Your company policy is not to pay fines which are considered a private expense. Is this fair in this instance?
- An employee stays in a hotel for a two-day conference and their partner (who is an ex-employee) accompanies them. Both individuals have dinner with other delegates who they both know, and a new business deal is secured over coffee. The employee submits an expense claim for dinner for two people (them and their partner). Is this an allowable business expense as the dinner attended by both was instrumental in securing the deal?
- You agree to various employee requests to work from home and are now receiving expenses claims for a proportion of their lighting, heating and utility bills for the days they are working away from the office. Is this a valid business expense claim?
The above examples can be answered with clearly defined distinctions between business and personal expenses backed up by clear management communication about what is expected. Even better if the clear (but often wordy) definitions are not used in the expense policy itself but rather an accompanying ‘expense FAQs’ document as per our example HERE.
What are scale rate payments?
If you agree to providing your employees with a set amount of money to pay for common business expenses such as travel and meals, these are known as ‘scale rate payments’.
As long as the employee has actually spent the scale rate payment amount on business expenses, you will not need to check every single receipt - it’s fine to just check a sample. But bear in mind that HMRC expects you to have a checking system in place to ensure that you are only reimbursing employee expenses on qualifying occasions where the employee has genuinely incurred a business expense.
How do these differ from round sum allowances?
A round sum expenses allowance is an allowance which is paid to an employee irrespective of whether he or she spends it or not in a particular way. This is different to reimbursement of expenditure actually incurred by an employee (which is the scale rate payment outlined above).
A round sum expense allowance is taxable as part of the employee’s earnings. Common examples are a clothing or fuel allowance. Another example might be an amount for incidental expenses for calling home or having laundry done if an employee has to regularly stay away from home overnight for work purposes.
Want to know more?
Check out this free guide on the complexities of expenses policies and make sure you stay on the right side of the law > What the law says on staff expenses
