This month we explain why it is absolutely vital for all employers to have a robust expenses policy in place for employees, and to make sure that it is fit for purpose by keeping it up to date.

When we say all employers, we mean all employers, even those with just a handful of employees, This doesn't mean that it is a one-size-fits-all approach in that every employer needs to have a huge document covering every expense under the sun, we could be talking about a 2 or 3 pager for a very small employer to be used as an aide memoir more than anything. The important point we are trying to make here is that having no document at all in place governing the payment of staff expenses, or one that is so out-of-date and just stuck in a drawer somewhere that it's of no use, is usually a sign that the business is not being run as effectively and as compliant as it could be and could be storing up serious issues for the future.

So, in no particular order, here are some reasons why an expenses policy should be an absolute must for employers:

1) Control Costs

One of the biggest problems for employers with no proper policy or procedures in place for staff expenses is that they have absolutely no control over what the company's money is being spent on, or where, or by whom. In such cases, the true figures only come to light when the accounting year-end work is done and, even then, there is often a lack of proper information to really break down the different costs.

A policy that spells out to employees what they are entitled to claim when away on business, and more importantly NOT allowed to claim, and which is properly policed by the employer, is a very effective tool in managing staff expenses and in identifying where costs are being seriously leaked.

2) Manage reputation

Again, this is all about control. If employees have carte blanche to claim back whatever expenses they can "get away with" what damage is this doing to the employer's external reputation ? For example, if there is no limit or ground-rules in drinking alcohol when away on company business, are employees letting their hair down and getting into bother when representing the employer ? Does the outside world see the business as wasteful in providing staff with a "Champagne Charlie" lifestyle when away on business even if this is not the reality in most cases ?

A robust expenses policy should not only clarify the type and level of expenses allowed but also to stipulate what is expected of an employee when representing the business away from the office.

3) Reduce fraud

We have commented before about the increase in fraudulent claims by employees and this is more common where there are no guidelines in place about what is acceptable and what will happen if the employee is deliberately making false or over-inflated claims, i.e. disciplinary action.

It is difficult to to totally eradicate expenses fraud, especially in larger organisations, but an expenses policy which absolutely makes it clear that claims outwith the policy will not be authorised and any deliberate wrong-doing will be punished will stop the vast majority of employees from "trying it on".

4) Change culture

We often find that employers with no, or a poor, expenses policy are generous by default, i.e. they are stuck with reimbursing over the odds when staff submit expense claims just because this has always been the case and there is now an expectation that there will be some form of reward or profit built in to expense claims.

Bringing in change is always difficult especially if staff are negatively affected but the introduction of a comprehensive expenses policy (if done properly) can be a good start in breaking the mould.

5) Health & Safety compliance

Despite a huge rise in health and safety legislation for employers in recent years and court cases involving a lack of care by the employer, health and safety is still one area which is largely ignored by many employers when devising a staff expenses policy, many opting instead to have a few lines in a separate staff handbook on health and safety issues around the workplace but not mentioning situations away from the workplace.

A compliant employer should have provisions in their expenses policy to cover issues such as :

  • Drinking of alcohol and behaviour when away on company business, entertaining clients, staff events, etc
  • Drinking and driving, especially in relation to "the morning after the night before" issues
  • Use of mobile phones while driving (whether in a company vehicle or not)
  • Other safety issues when driving, e.g. tiredness, roadworthy vehicles, etc

A policy that covers such areas should help to minimise situations where the employer could be argued to be culpable for any accident or injury to an employee or third party.

6) Tax and National Insurance compliance

Evidence shows that nearly all employers with no expenses policy, or one which is not really used or updated, fail to manage their PAYE compliance effectively with most exposed to significant additional liabilities of tax and National Insurance. It is not difficult to see why this happens - employees have no guidelines as to what they can claim for, or how much, and finance staff have no guidelines or understanding on what is acceptable from a tax/NI point of view which ends up with claims being authorised which should be subject to tax/NI either in part or in full. HMRC usually has a field day in such cases when doing a PAYE audit !

Tax leakage can only be controlled if staff incurring expenses/lodging claims and finance staff authorising and processing payments are fully aware of what circumstances will trigger a tax cost and how this should be dealt with.

7) Reduce issues with HMRC

Notwithstanding the fact that there will almost certainly be tax compliance failures through a lack of an expenses policy, the fact that a policy does not exist sends out the wrong message to HMRC and could bring the employer to the top of HMRC's "hit-list" in line with its risk based approach to compliance reviews. How does HMRC know that there isn't a policy ? Well, for a start, any employer applying for a P11D Dispensation will have to notify HMRC of what processes and controls they have in place around staff expenses and those employers without a Dispensation will already be within HMRC's radar as all employers really should have one nowadays if they are serious about meeting their PAYE compliance obligations. HMRC will also be able to build a picture of how an employer is managing it's expenses through day to day dealings with the business.

Don't make it easy for HMRC ! Admitting that there is no expenses policy in place is as good as saying to HMRC "we know we are not paying expenses within the tax laws so come on in and fill your boots" !!!

8) Have a joined-up staff reward strategy

The danger of treating staff expenses as a stand-alone area of staff payments is that this could cause inconsistencies in how employees, or future employees, view the organisation. For example, if the organisation is seen to be one of the "better" employers in the sector/locality because of higher than average salaries, generous benefits, a friendly and fun environment, etc but the expenses offered when staff are away on business are vague, not in line with industry standard or inadequate in some areas, will this taint the overall view of the organisation ? The reverse is also true, an overly generous expenses regime could send out the wrong messages when looking at the overall employee "deal" and it could mean that the employer is paying over the odds to employees in all areas compared to the marketplace.

The most forward-thinking employers bring staff expenses into the mix when developing their overall staff reward strategy so that not only can overall staff costs be better understood and managed but also to ensure consistency in how the organisation positions itself in the employment marketplace.

9) Maximise efficiencies

We talked earlier about general cost and tax leakages arising from little or no policy and processes on expense reimbursement. What is often overlooked, however, is how inefficient current processes are and how much time and effort is being wasted by everyone "doing their own thing" in terms of claiming for, and reimbursing, expenses.

An expenses policy, and robust processes behind this, can reduce the time involved in staff making claims, line managers authorising claims, the finance team processing the claims and making payments and also tax reporting at tax year-end not forgetting all the time involved in backtracking for information if and when HMRC raises questions around particular payments or employees.

We have yet to see an employer that is time and cost efficient without an expenses policy in place !

10) Reduce advisor costs !

Many a client problem we have to fix stems from the lack of controls, processes and policy documents, and an expenses policy is often central to this. It is also evident that bigger problems usually arise from PAYE audits where there is no expenses policy and process to control payments which brings with it more input from the likes of Optimum PAYE to try to temper HMRC's assertions and over inflated settlement figures.

An expenses policy does not fix everything, a lot still depends on how robust the employer's processes and procedures are in managing employee expenses.However, it can certainly help to reduce issues in all of the above areas which should help to keep HMRC at bay and, in turn, help to reduce the input from advisors.Are we talking ourselves out of work here ??!

 

Conclusion

If you are an employer and you either don't have a comprehensive staff expenses policy, or you have one but it isn't used or followed or it hasn't been updated for a few years, then re-read the 10 points above. Once you have done this if you are still  unsure how your organisation stands in any of the areas highlighted then we would suggest that you should probably stick an expenses policy on your To-Do list, near to the top, as this is something that cannot and should not be ignored.

As we have intimated already, a staff expenses policy is only truly effective when it is backed up by robust procedures and processes that ensure the policy is followed, otherwise it can be a complete waste of time and effort and still leave the employer exposed in the above areas.

It would be remiss of us not to mention here that we have many years of experience in pulling together expenses policies for employers of all sizes and in all sectors so do talk to us if you need any pointers or assistance in getting a policy (and proper procedures) in place for your business. Okay, plug over !

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