How to Control Employee Expenses
Since the last recession, many businesses have, quite sensibly, become more focused on managing their overheads and controlling employee expenses is an important part of this process. So, how do you do it?
- Have a policy – write a policy and include it in your staff handbook or similar document to bring it to staff’s attention. According to some sources, only about one-third of businesses have a policy in place. If it is isn’t written down, how can it be understood clearly by employees and enforced by the employer?
- Enforce the policy – of those businesses that actually have a policy, I wonder how many actually routinely check that claims follow the rules. There’s not much point in having a policy if all expenses are paid without some form of approval process or sample checks. Some employees will soon catch on if there are no procedures in place, which could potentially lead to some sort of fraud and misappropriation of business monies.
- Mileage – in many businesses, mileage claims are the largest type of employee expense, especially where there are sales reps or engineers who spend a lot of time on the road. A YouGov survey found that 25% of employees admitted to padding their expenses at some time and 65% of them said that they “hid” the excess claim within their mileage claim. Again, a sample check of mileage claims would go some way to mitigate against this fraud risk.
- VAT on mileage – Don’t forget that input VAT can be claimed on the fuel element of mileage expenses reimbursed to employees. As it is quite difficult to calculate, many businesses do not claim it, thereby losing out on cash and profits they are entitled to.
- Demand receipts – A VAT receipt is required otherwise input VAT cannot be claimed. A credit card slip is not a receipt for VAT purposes! If employees have a smart phone with a camera, why not ask them to take a photo of receipts at the point of sale? A clear digital image is accepted by HMRC. Some cloud accounting software, such as Xero, even allows employees to complete on-lines expense claims and upload supporting photos directly into the software.
- Try to measure the value – this often isn’t easy to do, but some exceptionally large expenses, which are incurred for a specific purpose, may be able to be measured. For example, if an employee is spending a lot on taking prospective customers to black tie dinners, you should be able to check if the guest subsequently became a customer and measure the value of their business.
If your wish to discuss any of the above issues, such as accounting for expenses and input VAT, using cloud accounting software or putting systems and controls in place to mitigate against the risk of fraud, please do not hesitate to contact Matthew Grant or email@example.com – 01904 464100