Employee Expenses Management: Build Your Defence Case Against the Tax Inspector Thursday 17 January 2008 PDF Print If you do not collect enough information from your employees when they make expense claims you could be risking heavy fines from the HMRC. They need to understand if a payment you make to an employee is either taxable or to reimburse a legitimate business expense. The burden to provide proof rests on the person in your organisation who maintains this and they could be required to provide up to three years worth of information! Reports Adele Briggs, Manager Operations Software Europe. HMRC do not specify exactly what information they require, as it will vary from company to company. But you should be able to show: • The date the expense claim occurred • What that expense was • The reason for the expense • What company or person initiated the expense • If a meal was consumed – then you must show who attended and how they are associated with your company The cost of getting it wrong: With a paper based system it is very time consuming to ensure you have collected all this information correctly, employees may put data in fields but they will not always explain the expense. One company recently reported a £150,000 tax fine simply because they didn’t have enough information to prove their expenses were legitimate business expenditure. If the attached graph reflects your employee’s lack of documented employee expense claims your fine will be in excess of £250,000. The Tax Inspector can go back three years, can charge you interest on the perceived under paid tax and also impose a fine. The tax to pay for a 40% taxpayer is 82% of the cost of the expense. For example: A 40% tax payer claiming £95,000 worth of expenses a year over a three year period that are all accounted to be benefits in kind will incur 82% of the costs of the expenses, plus a 20% fine and 10% a year in interest will equate to a total penalty cost of £308,484. Consultants view: Without implementing and enforcing your company employee business expenses policy, which ensures you are collecting enough and the correct information, you are opening yourself up to the unknown. A Tax Services Manager from one of the top 10 accountancy firms, delivered a very compelling presentation on Employer Compliance Reviews to Software Europes clients. And reported: “Major problems can arise from incorrect treatment of expenses and benefits with large liabilities if you get this wrong. It is strongly recommended that companies implement a more robust procedure especially tightening the expense policy and procedures with the help of an automated system, such as expenses.” Why you could be fined: To put it simply, an employee who simply doesn't include all the necessary information required by HMRC could open you up to hefty penalties from the HMRC. 1. Monthly mileage - At the end of the month it is very easy for an employee to simply total up their business mileage and submit one claim for it all, without itemising each trip and giving a legitimate business reason. This approach is simple for the employee and whilst their line manager may know it is valid and trusts his employee; but without correctly documenting what the expense was for, the Tax Inspector would have the right to declare it as ‘Benefits in Kind’. 2. Monthly meals - Similarly to mileage, an employee may choose to combine the cost of all meals incurred. However, there are many reasons why an employee would reclaim the cost of a meal with many falling under the heading ‘Benefits in Kind’. When it comes to meals you must log why the expenses occurred and who attended to avoid being charged any penalty. 3. No reason for claim - If the claimant cannot provide a reason for an expenses claim you must question why they should be reimbursed. By the same measure if not enough information is provided you may also be subject to scrutiny from the Tax Inspector. Without a reason HMRC could decide it is entertainment or Benefits in Kind and both will cause you to pay additional tax. 4. Claims not stating who the expense was for - Again, HMRC expects expense payments to be for a business reason, you need to state who has caused you to spend the money. Many claimants will either state nothing or put the name of the restaurant, taxi firm or train station where the expense was made, but, it does not show why the expense was made. How can you ensure you record the information accurately: expenses is an automated expense management system that makes it easier for your employees to enter their claims concisely. It can prevent the claim being processed unless they complete the mandatory fields required by HMRC. Employees could still input inaccurate information, by simply entering the wrong information into mandatory fields. expenses has a very powerful reporting system that allows you to easily report on all fields on the claim form page, including the company name, to ensure that they have entered correct data. expenses will provide you with the best tools to ensure you do not get fined by the Tax inspector in the future. One customer, who, prior to using expenses, always had problems with the tax inspector, reported a perfect result with his employees expense claims on his last audit. About Software Europe: Software (Europe) Ltd, formed in 1989 and trading as Software Europe, is an independent computer software company providing software solutions to the U.K. and European markets. We have searched the world for the best of breed solutions and have also built our own excellent products. About expenses: expenses, a leading UK based expense management system, has been designed by Software Europe to give you greater control over your employee expenses, increase your productivity and profitability and ensure relevant Tax & VAT is automatically adhered to, in accordance with HM Revenue & Customs. For more information about this please contact: Tracey Turton, Marketing Executive, Software Europe Tel: 01522 881300 or Email: firstname.lastname@example.org This press release was distributed by ResponseSource Press Release Wire on behalf of Software Europe in the following categories: Consumer Technology, Personal Finance, Business & Finance, for more information visit http://pressreleasewire.responsesource.com/about.