This introduction can hopefully clear up some of the questions surrounding claiming back expenses.
1) Paying expenses can supplement your salary, tax-free?
Expenses payments can be made tax-free, but only if they meet certain criteria.
The Golden Rule, according to the HMRC, for allowances and expenses is:
“An employee may deduct expenses incurred wholly, exclusively and necessarily in performing their duties.”
So, expenses can and should be used to reimburse employees, but if you’re making payments over and above the employee’s salary that do not meet the Golden Rule, then these should be treated as a benefit and you would be required to report on these payments to HMRC as part of the employee’s P11D.
Some examples of expense items that could be tax-free
For your information – here’s a list of examples of expenses that typically qualify to be paid tax-free.
Travel (including business mileage)
2) staff parties and events are totally tax deductible?
When it comes to staff parties and special events, there is some margin to claim tax back, but the rules are very strict.
Your annual employee event will be exempt from tax, NICs and reporting only if it meets the following three conditions:
it’s an annual event, such as a summer barbeque or an end-of-year party
the event is open to all of your employees
the cost per head of the event isn’t more than £150.
So, you can have the party of a life time as long as it doesn’t exceed £150 per person. You can also spread it over two or more events, but remember: the cost of the event that takes you over the threshold will have to be taxed in its entirety. Oh yes, and it must be open to all your staff, from the most senior to the most junior members.
3) You must have original paper receipts to meet HMRC requirements?
The common error is that VAT can’t be recovered without the original paper receipt and that companies have to retain all hard-copy receipts for expenses, in order to comply with HMRC rules.
The good news is that it is possible to collect receipts digitally and retain these electronic images of the originals instead. However, they must be are clearly legible, easily accessible, printable and not manipulated or editable.
Also, you can claim VAT back using the digital copies, and you can even get companies to audit all of your receipts if you have a clever digital process for submission and approval.
If you require any further information with regards to Digital receipts, then don't hesitate to contact us and we can discuss what application we use to make our bookkeeping process quick and simple!