The importance of sound expenses procedures
Naturally, employers want to keep costs down and having a robust system for checking employee expense claims should be part of that regime. What are the requirements to meet HMRC’s standards?
-
HMRC clarifies treatment of averaging relief under MTD IT
HMRC has updated its guidance to explain how averaging relief claims will operate under Making Tax Digital for Income Tax (MTD IT). The clarification addresses concerns about how farmers and creators will claim relief once quarterly reporting becomes mandatory. What has changed?
-
Double up on the employment allowance
You’re the sole shareholder of a limited company which employs several members of staff. You’re working on plans to start another business with an ex-colleague. Can both businesses benefit from the full employment allowance (EA)?
-
VAT cut for children's holiday activities over summer
The government has announced a temporary reduction in the rate of VAT applying to certain children's holiday activity programmes during the summer holidays. The measure is intended to help families with childcare costs during the school break. What has changed?
Self-policing expenses policy
Generally, HMRC isn’t concerned about the amount paid to employees for job expenses. It realises that employers won’t pay more than they have to and so to that extent the level of expenses polices itself. Conversely, it’s very interested in checking that what employers pay in expenses either meets the conditions for tax and NI exemption or is put through the payroll and PAYE tax and NI accounted for.
Tax and NI exemption
Until April 2016 employee expense payments weren’t liable to PAYE tax or NI. Employers had to report all expenses payments to HMRC and employees had to declare them on their tax returns as either taxable or not. It was up to each employee to decide the tax treatment and HMRC to challenge if it didn’t agree.
The current system puts the onus on employers for checking if an expenses payment is exempt or taxable. If the employer can’t show that they have made a proper check and HMRC considers the expense payment to be taxable (and so also liable to NI) it can demand that the employer, not the employee, pays the corresponding tax and NI bill. It may also charge a penalty.
If HMRC determines that an expense payment wasn’t exempt, but the employer can show that they made the proper checks and reasonably came to the conclusion that it was, it can’t demand the tax, NI or a penalty. Therefore, it's a good idea to keep a record of the checks made, e.g. the link or copy of the HMRC guidance followed.
Checking procedures
HMRC can’t and doesn’t dictate exactly how employers run their expense checking system. Instead, it’s up to them to be aware of the rules for what is and isn’t an exempt payment. Half this battle is knowing where to find the relevant HMRC information and guidance.
HMRC’s guidance booklets 480 (general expenses and benefits) and 490 (travel-related expenses) should provide all the information needed for checking if a payment is exempt or liable to PAYE tax and NI. If not, employers can contact HMRC. Details of how to do this are included in the booklets.
Subsistence payments
In addition to guidance on general employee expenses HMRC provides further information and model systems employers can follow when checking subsistence payments to employees. The rules for checking these changed in April 2019. While employers don’t have to follow HMRC’s models, it’s sensible to at least incorporate their key elements in the system. There are four models to choose from depending on whether the business is a one-person limited company (the rules don’t apply to sole traders and business partners) or a small, medium or large employer





This website uses both its own and third-party cookies to analyze our services and navigation on our website in order to improve its contents (analytical purposes: measure visits and sources of web traffic). The legal basis is the consent of the user, except in the case of basic cookies, which are essential to navigate this website.