The Death Knell For Round Sum Expenses?
With the news that HMRC has introduced approval notices for organisations paying round sum expense allowances, we asked our Chief Financial Officer Andy Jackson to address some questions: why would you want to pay round sums in the first place, how will the approval notices affect you, and is it really worth applying for one?
Firstly, let’s deal with what a round sum allowance is. In simple terms, it’s a set amount of cash given to employees to spend on expenses. HMRC publishes the rates (generally annually) which depend on the length of travel and time away from the office. For example, it is accepted that HMRC believes an allowance of £5 per day for subsistence can be paid for an employee who is away from their normal employment base in excess of five hours on a particular day, and £10 if in excess of 10-hours. For this to be paid tax free, a dispensation is required.
To date, the round sum method is generally used by organisations who want nothing to do with expense claims.
Going forward, round sum allowances will now be treated by HMRC as earnings unless a business has an approval notice in place. Securing an approval notice won’t be simple. As part of the changes, the employer is now required to have a system in place to check that the employee is in fact incurring the expenses on which the allowance is paid. The need to evidence receipts to support a claim, or risk having a dispensation removed, is where the real workload begins.
Quite honestly, since April 6th 2016, it has become really difficult to the pay the allowance unless employees keep receipts for all expenses incurred. That means there really is no point in paying the round sum allowance because you would just reimburse the expense claim instead!
Personally, I believe this is HMRC’s way of stopping organisations paying round sum allowances completely. HMRC doesn’t particularly like them and prefers that employees are reimbursed based on actual costs incurred.
I can not see many companies persisting with round sum allowances. An approval notice only lasts 5-years and then businesses have to apply again and evidence proof allowances (as mentioned above). The fact that they will need a system in place to track the receipts and expenses incurred will ultimately encourage them to move to a reimbursement of expense claims instead.
With that in mind, it would be a much better option for businesses to introduce a proper expenses claim system. Using a system, such as Expenses, employees can track their expenses easily on the go with our mobile phone app.
Alternatively, if you really don’t want anything to do with expense claims then why not outsource your entire expenses process and take away that unwanted headache?
With Expenses Expedite, not only can your employees track their expenses on the go but we can also take care of the checking of the claims to ensure that the receipts comply with business policy and HMRC requirements. If your employees pop their receipts in the post to us we’ll even scan and attach them to the system. Once that all has been done we’ll then take care of the reimbursement of the funds into your employee’s bank account providing a complete end to end solution.
The speed that our Expedite team works out means that expense claims, from submission to reimbursement, can be turned around in 3 working days.