The People Bulletin

Snake skin shoes, a helicopter ride and a four pack of underpants are some of the more bizarre claims I have encountered over the years. Apparently the snake skin shoes were a replacement for a pair damaged at the office Christmas party...by a snake. The claim was covered in the expenses policy as it came under the heading of ‘discretionary reimbursement of damaged personal effects’, it was nonetheless taxable. The helicopter ride was for a business journey; but, it was contrary to company policy to use this means of travel as it was considered too dangerous and so the employee should not have made the claim, however the expenses policy did not reflect that travel policy and so the claim was paid in error. The underpants were required due to an unexpected overnight stay but still of course did not meet the wholly exclusively and necessarily test and so were in fact a benefit and the cost should have been paid through payroll. 

An expenses policy, if well drafted can cover the majority of expenses which employees may, at some time, claim or attempt to claim and will therefore be a helpful document for your employees and your organisation alike. This will especially be the case when the actual tax treatment is counter intuitive to the expected tax treatment. For example, an employee is called into the office on a Sunday to cover in an emergency situation; the employee would like to claim for travel on that day and you as the employer may well be prepared to pay it but...it’s still ordinary commuting and therefore reimbursement should be made through payroll under deduction of tax and NIC. 

The payback from an expenses policy includes better expense control. The policy will help your organisation to be tax compliant and transactions will more likely be routed through the correct system to enable you to meet your reporting obligations. It can also be used as a vehicle for linking other policies to the expenses. For example, it may help you to ensure that your organisation’s image is protected by ensuring that your ethical values are adhered to. It can link health and safety policies to expenses such as ensuring private car drivers are adequately insured for business travel. From an expense claim, I once also identified a breach of data protection act compliance. 

An expenses policy should address some of the more basic areas of expense control such as authorisation of claims. It should make clear where an employee must obtain approval prior to the expense being incurred. It should make clear who can authorise a claim, for example, good practice would be to insist that the most senior member of staff pays the bill for a group, in this way the manager cannot effectively sign off his/her own expenses by getting his/her secretary to make the claim.

Above all expenses policies can help manage expectations. Your organisation may have a very generous expenses policy; or, perhaps, you are a charity with limited funds and a desire to make sure that the public do not see your employees spending charity funds at all. Either way it is important to ensure that your employees are clear at the outset about what they can and can’t claim. It is important for employees to feel that they are not being treated unfairly compared to others in the same organisation; this kind of consistency of approach is only possible where an expenses policy is used by the organisation. 

I hope that the above has convinced of the efficacy of a clear expenses policy. So where do you begin? There are a number of questions posed below, and answered with some guidelines. Keep in mind though that the beauty and the difficulty with expenses policies is that the best of them are unique to their organisations. They are moulded from your activities and therefore it is not possible to give you more than food for thought. 

Is it in perspective? 

Common sense should prevail. It doesn’t take a committee to produce an expenses policy. The following is not suggesting that any number of people be absorbed in the process of drafting an expenses policy for the next six months. A small organisation with a handful of employees will probably manage on a one page expenses policy very well; whereas a more complex, larger organisation may end up with a very long document more akin to a short novel, still it’s not difficult. 

Who should have input into the policy? 

To determine this, consider the interests of the affected parties and the outcomes that are required. 

• Spend – finance department and budget holders.
• Reporting – tax department payroll, finance department and budget holders. Expenses feed into reports such as P11Ds/P9D’s, internal accounting, statutory accounting.
• Other HR policies – The expense policy may be the first time a particular spend has been considered, does HR need input? For example, are there discrimination issues involved? What if the expense policy said a mother may claim for childminding costs while away on business? I can just see HR raising a hand to point out that the fathers in the office must also be able to claim the same thing.
• Other compliance – compliance managers e.g. legal department, premises department, IT. The Data Protection Act is concerned with processing of personal data and it has many requirements. The destruction of data for example is considered processing under the Data Protection Act. Your expenses policy should be clear for example that paying someone to handle your document shredding must be done in a particular way. This is just one example of ‘other compliance’. Your organisation may, and probably will have, other compliance concerns.
• Feedback – employees. Throughout preparing your policy, seek input and feedback and test it out on some employees. Ask new employees if they could find what they were looking for.

 How do you decide what should be included in the expenses policy?

• Look to see what you are currently paying to employees through expenses claims, petty cash, company credit cards, other purchase cards, through purchase ledger perhaps too. Consider whether these claims are reasonable, also be aware that they may not be claiming expenses they are entitled to.
• Bring HR in to see how other policies can be incorporated into the policy to best effect.
• Don’t neglect discretion. If your policy is silent on what may be discretionary it may result in inequity of treatment between employees. There should be few items that are genuinely discretionary, make that clear.
• Home working arrangements may affect the treatment of certain expenses. Make the differences clear e.g. broadband costs are very complex.
• One absolute must have category is entertaining. The policy must be clear about the difference between staff entertaining, business entertaining and subsistence expenses. In my experience more errors are made in this area than any other. 

 How do you best communicate the expenses policy?

• What are the best formats and media? The answer is very much linked to the size and complexity of your organisation.
• Whether it’s long or short, make sure everyone can readily find what they are looking for by incorporating a good index.
• Hard copy printed versions are more difficult to update but have their place.
• New employees will go through some form of induction on their first day/week in the new role. The expenses policy is generally given to them at that time.
• Make sure that those who authorise the claims have read the expenses policy. They are responsible for ensuring compliance too. Whatever the policy says can be undone by practice, enforce the policy.  

What about claim forms?

The link to the claim form is strong. A well designed claim form will also greatly assist you in accurate data posting and ensuring claims are processed through the correct route, for example an expenses claim system or payroll.

How do you keep the expense policy up to date? 

Consider which areas will need to be updated and give someone the responsibility for updating them. For example, the HMRC advisory fuel rates are reviewed once every six months.[1] Rather than include the rates in the policy provide a link to the HMRC website or your own intranet. 

The changes required may arise from changes to your organisation. If your employees have not in the past had to undertake foreign travel your policy is likely to be silent on the point but it is important to note that there are differences and new areas to consider. For example, an employee who is asked to travel abroad may decide it is reasonable to claim for his/her passport application on the basis that the only reason he/she is doing so is because of the business trip, but it does not meet the ‘wholly, exclusively and necessarily’ test and so if paid it must go through payroll.

The answer then is to ensure that the policy is regularly reviewed and that business changes are considered in the context of the expenses policy.

It is key that all new and revised policies are given sign off by the right people. An expenses policy should be reviewed and approved prior to issue by all the key players.

A final word

It is possible to find any number of expense policies on the web. These may make a fine start point for you.  The key to success is in the moulding of it to your organisation. Sometimes starting with a blank sheet of paper is best.

[1] www.hmrc.gov.uk/cars/advisory_fuel_current.htm