Expenses policy

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Expenses policy
  • General considerations
  • Interested stakeholders
  • The policy
  • Communicating the expenses policy
  • Expense claim forms
  • Other considerations

An expenses policy is fundamental to an employer’s expenses process. It should provide guidance on what expenses can be claimed by employees, approval processes and the process for reimbursement of the expenditure.

It is reasonable to expect HMRC to pay particular attention to the way in which the exemption in ITEPA 2003, s 289A is being operated in any compliance checks, and a clear expenses policy will help ensure that the exemption is only applied where the expenditure by the employee is actually deductible or where any flat rate expenses paid are in line with HMRC’s published or otherwise agreed rates. A good expenses policy provides a strong basis for tax compliance as well as meeting the financial and regulatory requirements of the employer.

General considerations

An effective expenses policy should cover the majority of the different types of expense which can be claimed by an employee. It is almost impossible to cover every eventuality; therefore, consideration should be given to policy on unforeseen expenses or managerial discretion.

The expenses policy can include cross-references to any codes of conduct in force for employees, ie many companies will have particular rules on particular classes of travel or activities which are specifically excluded from being reimbursed.

Tax consequences should be considered as the expenses policy is developed. The vast majority of expenses reimbursed should have no PAYE or reporting requirements ― otherwise it becomes more onerous for the employer to administrate. Where there is any tax / NIC due, it is important for the policy to be clear on who will be responsible for paying these amounts. It is worth remembering that some items can be subject to HMRC concessions, eg certain items that would on first appearance seem taxable can be included within an expenses policy with no PAYE or reporting requirements. The requirements for expenses to qualify as non-taxable are

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