Better payment processes and smarter online controls can save businesses a lot of money on small expenses and fuel purchases.
Most employees incur expenses during their working day at some point and it is an unavoidable cost of doing business. But just because it is necessary doesn’t mean there should be no control. We look at how you can set up better processes for managing expenses, and look at some areas of expenditure businesses can manage better.
Get your business categories defined
In order to get a grip on business expenses, you need to have clearly defined spend categories set up. By doing this, you can quickly understand where your employees are spending money, and where your cash is going. Hopefully it is all justifiable and necessary – but if not at least you know and then are able to act.
Don’t define them after the event. Trying to allocate spend through receipts, weeks or months later can be time consuming and wasteful financially too if the payments should not go through the company or can’t be claimed back.
By identifying each spend area, you can get employees to assign the expense at the point of payment, which not only gives you a real time view of expenditure if you use cards and a portal, but also educates them in spending money more carefully.
If you have your categories clearly defined and rigorously policed, and there doesn’t seem to be one for what they are buying, then that should signal a warning to them to at least check with a manager before they commit to the payment. They will soon understand what is acceptable and what is not.
It’s important to recognise that not all expenses are tax-deductible – either fully or in part – and it can be complex, but there are two main rules that generally (but not always!) apply:
That the expense is necessary for the function of your business
A receipt proves what the payment was for
This is the starting point, but then you need to spend time with your accountant or financial team to understand exactly what employees are allowed to claim, and to define it.
Specify payment levels
Before digital payment solutions, it could be hard to specify exactly how much employees should spend on various expenses. After all, one person’s idea of what their working lunch should cost can be wildly different from another’s.
But now, with online solutions, once you have defined your spend categories, you can apply spend limits to them and through the use of business credit cards, enforce them. So instead of the lobster thermidor, you can ensure they buy a cheese sandwich for their lunch instead.
But of course, not every employee is the same. It might be that some need higher levels for certain items than others, and so if you have a digital system which allows you to tweak each category, you can create a bespoke expense ecosystem for your business that allows each employee to spend what is necessary for them in the course of their job.
That way, expenses are working for the good of the business and not acting as a drain on cash and resources.
Get receipts!
All the expense management processes and systems in the world are nothing without receipts. It is imperative that you have these in order to really get an idea of what is being spent and also, crucially, to reclaim any tax.
In the old days, this meant envelopes full of crinkled paper dumped on your desk to sort through and a lot of resulting administration time too. But with digital expense management systems, employees can take a picture with their phone and the details will automatically be uploaded to your system, meaning you have everything you need, online, the minute the purchase has been made.
If you use a business credit card combined with an expense management solution, you can have all of this expenditure uploaded to your portal, allowing you not only to keep a close eye on what employees are spending, but also have everything you need at your fingertips for VAT reclaim.
Some business expense areas to think about.
Tax
The first expense to think about – tax - is one that is technically not an expense in the traditional sense; but it is still an integral part of expenses and it applies to almost everything employees buy and needs to be claimed back wherever possible.
So while you are keeping an eye on the typical expense areas such as supplies, food and fuel, keep a very close watch on tax expenditure and reclaim too. That means checking employees are submitting claims accurately and with receipts so you can understand how much tax you are paying that cannot be claimed back, when in fact it should. Any discrepancy between the two can be an unnecessary drain on company finances
Subscriptions
A growing area of business expense is subscriptions. Especially in the digital age, there are numerous subscriptions an employee can take out using apps, software and portals, for everything from navigation to video conferencing, and they can often be for small amounts each month. But across all employees every month, these can build up over time, and it is an issue that needs to be watched.
One employee might deem it important for their job to have an online subscription to the Financial Times or Microsoft Word for example, and if it is principal for business with any personal benefit incidental, then employees can claim them.
So keep an eye out for claims for small amounts on a regular basis and calculate what all these cost your business, and if they are necessary for work.
Home office
After the past 18 months of the pandemic, home office and working expenditure has become an area of business expense that companies have to deal with more often. During this period, the Government has relaxed some of the tax rules around staff purchasing their own home-office equipment and getting reimbursement on those expenses from employers.
But as with every aspect of the pandemic these rules could shift, and so it is imperative that you get up-to-date financial advice on what can be expensed, and what cannot.
But the fact remains that even after the pandemic, the shift to home working is becoming more permanent. Analysis by Deloitte found that 7.5 million employees want to work from home all the time and so you need to have a set of rules in place to govern what they can expense and what not, from wifi to supplies and equipment, and even furniture.
The risk is that without strict rules employees could assume all manner of expenditure they would never consider in the previous purchasing regime suddenly become expensable:
Office supplies and equipment
Traditionally, office supplies such as paper. Pens were the preserve of petty cash but the digital age has changed all that. It's now very quick and easy for anybody to order what they need online and have it delivered within a day or so.
So how do you keep control of this, especially if there is the added factor of home working involved? Obviously, it helps if you can specify a particular supplier with whom you have an agreement, but real-time reporting will also help.
Food and sustenance
An area that often provokes discussion is when food can be expensed and at what level. HMRC defines it as food and drink bought at an ‘acceptable’ price, but the term is loosely defined. So it is important that you come up with a definition for what you consider as acceptable for lunch and dinner, and for how long an employee needs to be away working from their normal place of work for this to apply.
It is important to establish the difference between a ‘normal place of work’ and ‘temporary place of work’ too. In the first, the regular places where employees go to work, subsistence is not deemed as an expense because it is not ‘wholly and justifiably’ for work – in other words, you need to eat to survive. But if staff are in a temporary place, such as a cafe while out on the road, this can be classed as an expense.
Travel
Expenses can be claimed back by employees for almost all travel expenses, such as taxis, public transport, air travel, hotels and meals for overnight trips. But just because most of it can be expensed, it doesn’t necessarily mean it should be spent in the first place.
Putting in place parameters, set up through online portals so staff know when they can use taxis rather than public transport, what class of ticket to buy, or level of hotel to book, can help to keep expenses under control with spending limits on each category too.
Fuel and motoring expenses
Fuel is a major expense for many businesses and for most is a purchase that happens out of sight, away from depots and offices. It can be a high cost and regular expense, but it is also business-critical. You might baulk at an employee expensing £200 a week on lunches, yet accept without question from them the same amount submitted on fuel.
If you operate a pay and reclaim system with fuel bought privately, you won’t know about this level of expenditure for some time after – possibly months until receipts and claims are submitted – which could have an effect on working capital and could lead to control issues too.
By using a fuel card instead, not only can you get discounts on fuel but all spend can be collated in real time on a dashboard, allowing you to get a situational view of what is going on at any point. That means you can ensure spend is appropriate, reduce fraudulent claims, and also get one simple, VAT compliant invoice to ensure you can claim back any tax.
Fuel cards also often give you the opportunity to pay for other motoring expenses, such as electric charging, tyres, oil, AdBlue and even tolls.
One motoring expense your employees can’t claim from you are penalties and fines though. They’ll have to pay them!
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