FD Insight: Expenses

January 28th 2015 | Posted by phil scott

FD Insight: Expenses

Creating and enforcing a fair expenses policy requires walking a very fine line. Too strict, and you risk a HR disaster with disgruntled staff. Too lenient, and you fritter away company profits.

And with UK businesses spending an estimated £8bn on expenses every year, it’s certainly worth taking time to hit that sweet spot that ensures happy employees and a healthy bottom line.

To learn how, we put the question to some of the UK’s most successful finance directors at a recent FD Recruit – FD & CFO Conference.

Start with a policy

The majority of companies handle expenses manually, and many do it on an ad hoc basis. The rules are often never written down.

But whereas you might think employees find rules too draconian, it’s often the case that they appreciate them. With a set of guidelines, an individual can avoid spending money on something they later learn you’re not willing to reimburse, and in fact might learn that they’re currently making purchases they didn’t realise they could claim for.

If you set out in advance what is included, what isn’t, what format you require claims and the maximum time period for submissions after a purchases, this can eliminate all grey areas, and with that, most arguments and falling out after the fact.

And whilst it’s good for an employee to know where they stand, it’s often even more important for the individual processing the claims to understand the rules, as this is usually where most hiccups occur. If the policy isn’t in black and white, how can they know what to rubber stamp and what to reject, and if they don’t know this, then how can it be possible that they are not handing over too much cash, or costing your company on tax that can’t be reclaimed?

Remember, expenses policy isn’t just about the potential to hand out too much money to staff, it’s also about the ability to claim VAT back by having the proper records in place.

Write your policy down.

If you haven’t got one, take some advice and create one. Then make it widely available to employees and make sure the claims processor always has a copy handy.

Talk it through with employees

An employee’s first assumption when you demand a receipt is that you’re checking up on them, that you don’t trust them to not make phantom purchases or to inflate the price a bit in their favour. And this can create resentment.

What many who aren’t familiar with the accounting function don’t realise is that it’s more likely that the receipt is required to claim the VAT back, or for other paperwork purposes. Whether you take their word or not, you still need that bit of paper to satisfy the HMRC.

So ensure your staff know this. Rather than demanding receipts and letting your team speculate as to why, it’s worth communicating your reasons. By explaining that receipts are required for VAT purposes, and then outlining the pounds and pence difference to profit and loss with and without them, you give your employees reason to support the policy rather than rally against it.

Look up as well as down

As with all company policy, employees look upwards to those above them for cues on how to behave. Expenses are no different, so ensure management gets the memo.

If an individual knows their boss is lax with paperwork and prone to adding on spurious purchases, it’s going to kill their motivation to play within the rules.

Make sure your policy is sent to the management team too, and spend just as much time explaining how and why good expenses practice is important as with other employees.

Get strict

Once your policy is written down and readily accessible, and you have underlined the need for receipts, your company is perfectly within its rights to refuse to reimburse any purchase without the right paperwork.

This might sound tough, but if you clearly warn everyone in advance, then there is no reason not to enforce it.

Even if a staff member does resent the decision the first few times, they will still quickly learn to adhere to the rules. If you allow a bit of leeway, or a few exceptions here and there, it becomes very difficult to enforce in the future. Sticking strictly to the policy will not only help everybody to fall in line, but it will help get rid of awkward grey areas in the future.

And in the end, you’ll have a full set of paperwork and receipts, ready for your returns.

Introduce technology

To ensure the burden of collecting records and receipts isn’t wholly on the individual – that could look like you’re merely increasing their workload – you can give them assistance.

There is plenty of technology available which helps collect all the data you need, and most of it is free, or at least very cheap, and easily accessed on smartphones.

Receipts can be submitted to HMRC in digital form, so your company can accept them in the same format. Find an app that allows a user to take a photo of a receipt and attach a note of the time, date and purchase, as they go. It will collect them over time and turn making a claim into a job that takes just minutes, rather than hours spent poring over paperwork.

And GPS is widely available on a lot of devices, so use it to track locations and log mileage. There are apps available that allow a use to switch on and off “company miles” for ease of recording.