Writing your expenses policy - here are some things to think about

It’s really important to have a staff expenses policy.

Even if you don’t pay very much out in expenses, making sure that you are clear with your expectations is really the least you should do.

If you pay too much to your employees through the expenses system HMRC could see this as a form of ‘disguised payment’ and expect you to pay employers NIC on the payments made.

A well-drafted expenses policy is also useful when you want to make sure that you are compliant for VAT purposes.

With that in mind, what do you need to think about when producing your expenses policy?

Clarity is the key

It’s important to make sure that your policy document is clear about what you expect of employees who claim expenses.

Firstly, the policy needs to be drafted in plain English and not engage in jargon or TLAs (Three Letter Acronyms!).

Use language that is definite rather than wishy-washy terminology.

Make sure that you clearly spell out when people can claim expenses, how they go about it and have values for the amount they are allowed to claim.

Align your policy with VAT and PAYE rules

One of the key points, when you are writing your policy, is to make sure it matches up with the rules regarding payments to employees.

Things like specifying the amount people can spend on subsistence and making sure they match what HMRC say is acceptable can save you lots of time later.

Have methods of coping with unusual circumstances

If things change then you need your policy to have a method of reacting to new circumstances.

For example, when the Olympics were held in London, accommodation prices in the capital went through the roof and in consequence, they breached pretty much every expenses policy in existence.

Having a method of allowing the employees to breach the limits you have set isn’t necessarily against VAT rules as HMRC say that expenses have to be reasonable so if a hotel room suddenly costs double then you can still claim the VAT as it was reasonable in the circumstances.

Make sure you explicitly state that expenses have to be for business purposes only

You can’t include VAT paid on expenses in your VAT return if the spending was for private purposes.

You need to be absolutely explicit that private expenses aren’t allowable unless of course, they are a pre-agreed reward for good work.

Clearly state how you will pay for fuel or mileage claims

This can be one of the most contentious areas of expenses and for VAT purposes the situation can be really very confusing.

There are several different ways you may pay for fuel or mileage and if you are claiming back VAT then you need to be clear with your employees about how you expect them to claim and what documentation you expect.

Let people know what paperwork you need

While we are on the subject of documentation it is important to let people know what they need to do with regards to tickets, receipts and invoices.

How will they prove that they paid for something?

How will you show that VAT was charged?

And of course, you need to let them know before they start incurring costs as they may not bother to ask for a receipt if they don’t know that they have to.

VAT on expenses doesn’t have to be difficult or time-consuming but you do need to set some ground rules so that people know what you expect of them.

A well-constructed expenses policy will help with VAT compliance and you’ll find that your life becomes a lot easier.

The Ultimate Guide to VAT on Expenses

Leading you through the minefield that is VAT on Expenses, discover practical advice, common pitfalls and real-world examples in our comprehensive and constructive guide.
The Ultimate Guide to VAT on Expenses

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