The recent employee expenses report by GlobalExpense shows how both legitimate and illegitimate expenses claims can be costly for employers.
Around £124 million in VAT was unclaimed last year because businesses did not have valid receipts for a staggering 41% of employee mileage claims.
VAT can be recovered where employees are reimbursed for fuel used on business journeys – reimbursement can either be for the actual cost or as a mileage allowance. The fuel element of a mileage allowance may be based on HM Revenue & Customs (HMRC) advisory fuel rates or on rates set by a motoring agency like the RAC or AA.
To recover VAT, it is necessary to obtain VAT invoices when employees purchase fuel, although these can be simplified invoices. Employees do not have to obtain an invoice for every purchase (although it is good practice to do so), as there just has to be sufficient fuel purchased to cover the amount of VAT reclaimed. HMRC recognises that the invoice amount may not match what is being reclaimed, although an invoice cannot be dated later than the period covered by a claim. So what can employers do?
Make sure that employees are aware of the need to obtain receipts – and that a credit or debit card receipt will often be insufficient.
Consider providing employees with one of the many different fuel cards that are available. One VAT invoice per month will then make the recovery of VAT much easier.
Last year businesses lost more than £300 million through fraudulent employee expenses claims, and another £1 billion worth of claims were not compliant with company policy. The main reasons given for exaggerating claims were because employees felt underpaid, were not paid for overtime, or did not receive full reimbursement for costs they had incurred.
Here are a few suggestions:
Have a clear written expenses policy that is accessible to employees. Less than half of employers do this, so it is not surprising that some 10% of all approved claims are not within company policy.
Make sure that managers and directors who approve expenses get appropriate training and support. Most expenses claims are not queried or rejected.
Expenses claims that are filed and dealt with promptly cut down on the risk of fraudulent claims from disgruntled employees.
Insist on a receipt to support all claims.
Consider using expenses management software because the cost of processing expenses can be huge compared with the amounts involved. The Forestry Commission reduced its processing costs by 60% after moving from a paper based system.
A change on entertainment
Following a recent judgment by the European Court of Justice, HMRC now accepts that VAT can be recovered on the cost of entertaining overseas customers. The law has been amended from 1 May, and backdated claims can be made subject to the normal four-year time limit.