6 Employee Expenses Myths Resolved
Rules governing employee expenses within the UK can be confusing for any business, especially those relating to reclaiming VAT, mileage and digital receipts. We get asked questions all of the time and they usually include “I’ve heard” or “We were told”. Working out what is fact or fiction can be time consuming for finance teams but the cost of getting it wrong can be detrimental.
So what’s true and what needs to be dismissed? We’ve pulled together the most common myths and shared the real answers to those false beliefs.
1. We were told you can reclaim VAT on ALL travel expenses
Not true. If your employees are travelling for work purposes away from their normal place of business, you must pay either the full costs or part of them (depending on your policy). It’s true you can reclaim all of the VAT on these expenses BUT if you already pay your employees a flat rate for travel and subsistence costs, you can’t claim back all of the VAT.
2. I’ve heard that reclaiming VAT on mileage isn’t worth it
Not true. Business mileage is the most common expense item for UK companies and usually the biggest outlay too. Not claiming the VAT back means your business could be losing out!
Calculating the right claimable VAT can be complicated but it is worth the pain. With the 6th VAT directive considerably tightening the calculations needed for correct reimbursement of VAT business mileage, automating your expenses process could be the answer.
3. Employees can use their vehicle for business without having business insurance
Not true. This is dangerously wrong. If an employee is using their vehicle for business use, not only must they have the correct insurance, but the employer has a duty of care responsibility towards them. If they aren’t insured for business travel and have an accident, they won’t be covered. It’s always worth getting your employees to check with their insurance provider.
4. You must have original paper receipts for HMRC
Not true. HMRC no longer need a copy of the original paper receipt, a digital one is acceptable. They must be legible and easily accessible but this means you don’t need boxes and boxes of receipts! If your employees have access to an expenses app that records their expenses, this makes it really easy for them as they can do it on the go, and your finance team will have confidence they have all the receipts.
We worked with CIPP to confirm that digital receipts were accepted by HMRC, for more information read our Digital vs Paper Receipts White Paper.
5. Staff parties are tax deductible
Not true. There is some leeway in claiming tax back, but the rules are strict. An annual company event will be exempt from tax, NI and reporting but only if it meets the following three conditions.
- It’s an annual event
- The event is open to all employees
- The cost per head isn’t more than £150
This can be spread over multiple events, but the rules above still apply. If in the tax year two or more parties or functions are provided, no income tax arises if the cost per head of each does not exceed £150 in total.
6. Apparently no one sticks to an expenses policy
Not true. Having a clearly defined expenses policy in place provides your employees with a high level overview of what is and isn’t acceptable, helping them to understand exactly what they can claim for. It also introduces financial control for your organisation saving you money by taking away the ‘guestimates’, loopholes and fiddles that may have occurred in the past. You can do this by enforcing an expenses policy by rejecting claims and items that don’t meet your rules. You can make this even easier by using an online solution, with built in artificial intelligence, which will automatically help you to enforce your policy.
If you need to create or refresh your expenses policy, our Creating An Expenses Policy White Paper will help you do just that.
These are just a few of the myths that we are continually asked when it comes to discussing employee expenses. It’s clearly no secret that reclaiming VAT can be a real challenge for any business but making sure you have the facts rather than believing hearsay is a step in the right direction. Plus having a robust employee expenses process with clearly defined rules within your expense policy is key and using an automated expenses solution is an added bonus!