Tips for effective expense claims management:
- Always keep a copy of your receipt, no matter how small. The pennies could soon turn into pounds of unclaimed tax deductible expenses.
- As a business owner, you are required by HMRC (and the Companies Act if you a the Director of a Limited company) to keep proper and robust records. You can do this by attaching Pdf images of receipts which will make audit checks much more transparent.
- If you are VAT registered you will need to keep the receipt to prove you had the right to reclaim VAT. If you don’t have evidence of the VAT receipt which you are claiming on it may reflect badly if you’re audited.
- Only include expenses which were incurred ‘wholly and exclusively‘ in the course of carrying out your trading activity. If it’s not a business related cost then you won’t be able to make a claim.
- If you have multiple staff you can allow them to create an expense form which will need to be approved at a higher level of authority. This means that any claims can be checked and should also be backed up with relevant documentation to prove the expenses are valid.
- All expense claims should be submitted in the name of the person claiming the expense and there should also be a description of how the expense was incurred: What? Why? When? Where?
- If you use Xero, you’ll also be able to see whether any expense claims are due for payment, expense claims can be reconciled with the corresponding bank transactions to be shown as paid. This gives a record of when and where it was paid from. That way any outstanding claims will display clearly.
What can you claim back on expenses?
Expense claims are usually made to reclaim the following types of business expenses:
- Travel and subsistence expenses. Check our article Food for thought. Can I claim for that meal or not? for HMRC rules on allowable travel and subsistence expenses
- Mileage Claims – ordinary commuting to and from work is disallowed for tax purposes, but mileage may be claimed for journeys where the Director or employee is required to travel away from their normal place of work in order to carry out their duties – this might include travelling to client or supplier premises, attending training course or commuting to a temporary place of work.
- Printing, Stationery and Postage – frequently staff incur small ad-hoc expenses on behalf of the business that can be claimed back.
- Mobile Phone Costs – employees may recover the element of their personal mobile phone that relates to calls made on behalf of the business
- Business Entertainment – it’s common for staff and employees to pick up the costs of entertaining clients or suppliers. This may be recovered from the business but you won’t be able to recover the VAT on business entertainment.
- Business Entertainment – it’s equally common for directors and/or managers to pick up the costs of entertaining staff. It may be a cup of coffee over a 1-2-1 meeting, or subsistence costs while the manager and member of staff are visiting a client. These may be recovered from the business and VAT may be reclaimed on staff entertainment expenses.
Submitting Expense Claims
There are many options available to you. Choose one and use it consistently for managing your expenses:
- Set each director/employee up as a supplier and enter each expense claim as a purchase invoice
- Use the Xero App – see how
- Use Xero Desktop – see how
Here we show you how to do this in Xero.