Creating an effective expenses policy

Why now?

Even though mandatory working from home guidance has been rescinded, many employers will want to continue with hybrid or even full homeworking and that brings with it an impact on a raft of company policies. Drafting an expenses policy should not be seen as a one-off project. Somebody should be given annual accountability for reviewing and updating the policies in light of changes in the company, but also legislative developments, such as new mileage rates.

Cover all bases

Depending on the size and complexity of your business and your rewards package you may well need separate policies for:

• homeworking
• business travel
• company credit cards
• company cars and vans.

Ensure that the policy considers all types of worker and whether there are any differences based on grade or role. Check it is made clear if atypical workers are covered by the main policy or have separate and different policies, e.g. if they are consultants or contractors, casual workers, agency staff or interns.

Controlling costs

All employers need to focus on cost control so the policy should not only make clear what cost parameters are acceptable for travel, subsistence and accommodation differentiated by grade if necessary, but also indicate alternatives that should be considered, e.g. video conferencing in preference to business travel. An approvals process should be considered, particularly for overseas travel. Some businesses will want to introduce the central booking of all travel and accommodation to ensure the best rates are obtained from preferred suppliers.

Pro advice. There will be times when emergency trips may need to be undertaken and prior approval should be expedited so consider how this can be achieved.

Green it

Policies should focus on the use of public transport or car sharing where possible with the incentive that an additional passenger rate of 5p per business mile per additional employee can be paid tax free in addition to the 45p per mile for the first 10,000 miles (25p thereafter) in an employee’s own car. HMRC also provides mileage rates for both motorcycles and bicycles so they should be included in the policy as an alternative to car use.

Pro advice. To ensure the appropriate mileage rates are paid and an inadvertent tax liability is not created when mileage exceeds 10,000 in a year, employees should supply cumulative mileage to date on each expense claim.

AFRs. Advisory fuel rates for company car users are lower than the 45p/25p own car rates as these are designed to cover wear and tear. They are reviewed by HMRC on a quarterly basis so provision needs to be made to circulate the new rates to company car users when they change.

Triangular travel. Many businesses insist on the triangular travel rule where employees claim the shortest distance of either: their home to the business destination or their normal place of work to the business destination. This is not a tax rule but simply a cost-saving approach. For tax purposes a business journey can be reimbursed tax free from home to a business destination or a temporary workplace.

Pro advice. If you choose to reimburse fewer miles than this having adopted the triangular travel rule, employees can claim the unreimbursed mileage direct from HMRC as a tax coding adjustment via their personal tax account or self-assessment return.

Hotels. You can control the cost of hotel accommodation during business trips by offering a friends and family incentive payment for those who can stay with relatives rather than booking a hotel. Such payments need to be processed through the payroll for tax and NI purposes, so consideration needs to be given to the net value and if this is a sufficient incentive for the employee. The tax-free £25 “friends and family allowance” was abolished many years ago!

Overnight and day allowances

It’s entirely up to you to decide what is an appropriate ceiling on accommodation and subsistence and whether alcoholic drinks may be included in a claim, but receipts will be required to substantiate each claim. You can also choose to provide incidental overnight allowances of £5 per night in the UK and £10 per night overseas to cover additional private expenditure such as telephone calls, laundry and newspapers. These can be reimbursed unreceipted if you don’t wish to process receipts for such small value items.

Meals. Employees who are working away from the office, but without an overnight stay can claim the following meal allowances on an unreceipted basis unless you insist on receipts: up to £5 for breakfast when leaving on business before 6.00am, up to £5 for lunch when the employee is away from the normal workplace for up to five hours, up to £10 to cover lunch and a snack when the employee is away from the normal workplace for more than ten hours, up to £15 for a late evening meal when working later than 8.00pm on business having worked a normal day and they are en route home. Employees may not receive more than £25, as a scale rate as these are called, in total for three meals in a 24-hour period if they are away from their normal workplace.

Subscriptions

Employers are not obliged to pay professional subscriptions on behalf of employees and those who choose not to do so should advise employees that they can make a claim for tax relief from HMRC in respect of such a subscription as long as the professional body is included in HMRC’s approved list .

Homeworking

Until the start of the pandemic the only option for employers to compensate employees for the additional costs of being able to work from home, such as heating and lighting, was to pay the tax/NI-free working from home allowance of £26 per month/£6 per week. When the government instructed people to work from home this was then not a matter of choice, so it opened up the opportunity for tax relief claims from HMRC. As a result, many employers have ceased paying the homeworking allowance and instead have encouraged employees to use the new homeworking micro-service to make a tax relief claim that will generate a new tax code. Now that mandating homeworking has been removed, you will need to decide whether you wish to compensate employees who are working at home by choice or as part of new hybrid working arrangement or take the view that as they are saving on commuting costs there is no need for a compensatory payment.

Pro advice. Employees should not be reimbursed for broadband in addition to the homeworking allowance unless they have had to upgrade their domestic package in order to work from home. Any legacy agreements to pay broadband allowances where there is no additional cost to the employee must be taxed and NI’d as earnings through the payroll.

Office equipment. HMRC has introduced an easement to the tax exemptions for the provision of office equipment and supplies that allow employees to receive a cash reimbursement if they have purchased items needed to work from home such as additional monitors, ink, paper, etc. This easement ends on 5 April 2022 and after that date all office equipment and supplies will need to be provided by the employer, not reimbursed to the employee. Any cash reimbursements will be treated as taxable expenses that need to be reported on the P11D and subject to NI through the payroll at the point of reimbursement. With this in mind, consider how you will provide any supplies after this date and ensure that any large items that need to be sourced by the employee are reimbursed before the end of the tax year.