Issues When Reimbursing Employee Expense Reports
Some research suggests that not all employees submit expense reports for money owed to them by their employers.
- Approximately one-third of employees say that they don’t request reimbursement for all their employment-related expenses for various reasons, including loss of receipts.
- Each year about GBP 517 million in expenses are incurred by employees and not claimed for reimbursement.
Reasons for the employees failing to claim reimbursement for these expenses include the following:
- Employer has a discouraging reimbursement procedure
- Employees forget to submit reimbursement requests
- Paper receipts become lost, which prevents an employee from being reimbursed
Expense Receipts: What does Valid Proof of Purchase Mean?
The rules around business expense claims are complex and may be confusing to some people. New employees may be unaware of the correct procedure for seeking reimbursement or who to approach for help and support within the company.
Employees who incur expenses during work travel must fill out forms to file a claim for reimbursement. These employees must also include expense receipts. All these elements make dealing with business expenses one of the most challenging parts of going to work. It’s not the best use of an employee’s work time when they should be calling on customers, making work connections, and using the employer’s software and apps to produce results.
Employers can also find the expense claim process challenging. They must look at the receipts they are required to keep and determine the best way to store them. HMRC may want to examine the expense receipts if they decide to make tax inquiries.
Valid Proof of Purchase Definition
Generally, a document is valid as proof of purchase if it indicates the following:
- the amount of the expense
- the date the expense was incurred
- where the expense was incurred
- the type of expense incurred
A standard receipt is considered valid as proof of purchase since it includes all the details listed above. Thankfully, HMRC allows businesses to upload digital copies of receipts to the cloud and keep them stored there until they are needed. There is no need to keep multiple boxes stored either on-site or at a storage facility in case the company is subject to a tax inquiry. Keeping digital records is much lower in costs than paying storage expenses.
Why Expense Receipts are Needed
You may be wondering what all the fuss is about expense receipts anyway? Why are they needed for employees to receive reimbursement for their employment expenses?
Business expenses are tax deductible, but only if the business has valid proof of purchase. The company must be able to prove it was a valid business expense. No one wants to pay more than their fair share of taxes, and that includes business owners. Businesses often set a policy that all employees wanting payment for their expenses will need to show receipts. Claiming deductions for business expenses is a commonplace and completely legitimate policy.
Any company can decide to reimburse its employees for their business expenses. If the company wants to claim those expenses as a tax deduction, they need their employees to provide proof of purchase. For this reason, many businesses have a stated policy that they will only reimburse employees for expenses on the presentation of a valid receipt.
Expense Receipts for HMRC
Companies doing business in the UK must keep records showing their expense claims paid out to employees. These records must be available to HMRC on request to support the company’s tax filings.
There are specific rules about record-keeping for employee reimbursement. According to HMRC, these rules are as follows:
- Companies must keep a record of the date and the details of each expense and benefit they provide to their employees.
- The companies must also keep records of the methods they used to calculate the amounts placed on their end-of-year forms.
- They must also keep records of any payments that employees contribute to an expense or a benefit.
All correspondence with HMRC must be retained. All records must be kept for three years following the end of the tax year to which they refer.
If a business doesn’t comply with HMRC’s proof of payment requirements, the company runs the risk of prosecution. Businesses must pay attention to HMRC’s documentation requirements and direct their employees to comply with them.
Proofs of Payment for Employee Expenses: An Overview
Each type of business expense an employee incurs has its own proof of payment requirements. Most of them require the employee to provide clear documentation as proof the employee paid the expense during work-related travel.
Meal Expenses
Employees sometimes become confused about receipts for meals during business travel. Most understand they need to provide a restaurant receipt. If they grab a takeaway meal from a bakery or a supermarket, they wonder if that is sufficient proof for the employer and HMRC?
The short answer is “Yes, it is.” An original paper receipt from wherever the employee purchased food will satisfy HMRC’s proof of payment requirements for one employee. The agency understands that entertainment expenses are not likely to be claimed from a visit to a kebab stand.
When an employee is entertaining clients or other guests, the requirement for recording information is more involved. The employee must provide an original receipt for the meal, along with the names of all the guests, their work titles, and the companies they represent. The employee should also note the reason for the meal or the event. These details will provide a thorough accounting of the expense if HMRC makes inquiries.
Mileage Costs
To be eligible for reimbursement for mileage costs, employees must provide their employer with the following information:
- Registration of their car
- Make and model of the vehicle
- List price
If the car was registered after January 1, 1998, the employee must provide an approved Carbon Dioxide emissions figure.
The employee must note the reason for the trip, the dates of travel, and the total mileage for their trip. Employees who drive for business should keep copies of all relevant information in a secure location or store it electronically to support their tax filings.
Employers are required to process mileage reimbursements in line with stated government rates. These rates may be updated annually, and employers are responsible for ensuring they are using the correct figures.
Transport Costs
Employers must retain documentation about employee transport costs, such as the exact reason for the trip and a copy of the tickets. Employers must keep copies of season tickets to sporting events provided to their employees or reimbursed to their employees, and any loans made to employees to purchase season tickets. If an employer provides subsidies for bus transport, these must be accounted for with receipts.
An employer may reimburse the cost for the employee to get from their home to their point of departure for a business trip (airport, station, etc.). The employer must keep receipts to explain these costs. The cost of an employee’s daily commute from home to their usual place of work isn’t tax-deductible by the employer, which means the employer is not likely to reimburse this expense for its employees.
Accommodation Expenses
HMRC has specific rules for reimbursing employees for their accommodation expenses. For end-of-year tax filings, employers must provide employees with either the cash equivalent or the same amount of accommodation provided for the employee or their family.
Proof of accommodation can be made by way of a detailed invoice that includes the following details:
- The number of nights the employee stayed
- All the costs charged to the room (could be an apartment or a house)
- An indication that payment was made in full (zero balance)
There are some important exceptions to paying an employee’s accommodation expenses. If the employee is a close relative (even if they happen to work in the business), the employer can’t pay for their accommodation expenses.
Miscellaneous Expenses
With any type of expense incurred by employees, employers need to consider that the expense must be backed up by documentation providing that it was necessary for employment purposes.
To satisfy HMRC’s inquiries, employers should insist on having enough documentation to explain the reason for the expense, why the employee paid it, and an original receipt.
Consequences for Non-compliance with Expense Receipts Policy
United Kingdom tax authorities require business owners to provide justification for all costs they reimburse to their employees. Companies that attempt to claim reimbursements on their end-of-year tax filings without supporting documentation (original receipts) may find themselves facing serious consequences. In some cases, the companies may be prosecuted.
Companies should collect and save receipts for tax purposes as opposed to invoices. Receipts provide more detailed information in case HMRC has questions about a particular expense. A receipt will list the date of the transaction, the type of goods the employee bought, and the method of payment.
An invoice only lists the supplier’s name and the type of goods supplied. An invoice can be helpful in terms of documentation; however, it doesn’t prove that payment was received by the supplier.
If you are becoming a little unnerved by this information about non-compliance, don’t trouble yourself. There is a way to automate expense receipts and ensure your company collects the correct proofs of purchase for every business expense.
Mooncard Corporate Cards Make Managing Expense Receipts Easy
Mooncard’s corporate cards make it easy for your employees to capture receipts every time they have to spend money while travelling on business. When an employee pays for an expense with a Mooncard payment card, the expense appears on the management application in real-time. Business owners and managers can track expenses on the platform to ensure employees are spending company funds appropriately.
Once the app identifies that someone is making a purchase, it sends a text message to the cardholder. The message asks them to take a photo of the proof of purchase to link it to their expense. If the employee is making an online purchase, the invoice can be sent directly to his management space using his email address.
Mooncard’s new solution allows you to upload and archive your supporting documents electronically until they are needed. There is no more need for collecting or storing paper receipts! Archiving the documents electronically means you don’t have to worry about the quality of the receipts eroding with time. If HMRC wishes to make inquiries, your company can produce the proof they seek without any issues.
Mooncard guarantees that the receipts it stores for your company will be authentic and legible. Mooncard also guarantees document integrity. You can trust our system to store your employees’ expense receipts for later review by any agency.
We believe in our process and how it streamlines the employee expense process for businesses of all sizes. Would you like to learn more about how the Mooncard corporate card makes managing expense receipts a quicker and easier process? Contact us today to arrange an online demo.