You may already have an expenses policy. Or you may be an organisation just starting to realise that you need one. Either way; this guide is for you.

It provides all the basic help and information you will need to create a robust expenses policy document. It’s the foundation on which effective expenses management is built.

With cloud-based management tools allowing us to efficiently monitor and maintain an expenses policy, there’s no longer any excuse for a failure to take control.

A properly implemented policy will save your organisation valuable time and resources, as well as helping to protect against fraud and compliance breaches.

The National Fraud Authority estimates that in excess of £100 million is being lost each year by UK companies as a result of falsified and exaggerated claims.

This guide provides an overview of how to create, manage and maintain a robust expenses policy.

The information contained is based on more than a decade’s worth of experience webexpenses has acquired in helping businesses regain control of their expenses.

The guide is split into two sections:

• Policy overview - Expert advice on key requirements
• Policy template - A sample expense policy template

Policy overview

How to create an effective policy The most effective way to approach creating an expenses policy is to go back to basics and ask some fundamental questions:

• What is it?
• Why it’s needed?
• How to make it work?

It’s by stripping away all the detail and focusing on these key concepts that you can refocus your policy and make sure it’s doing what you need it to do.

What is it?

An expenses policy is a document which outlines how your organisation handles businessrelated expenses. It gives employees guidance on what can and can’t be claimed for.

It provides a guide to the process of making claims, as well as what happens if there are disputes over expenses.

Why is it needed?

The primary aim is to provide a fair system of compensation for employees who incur personal expenses for business reasons. Without an effective policy an organisation leaves itself open to spiralling costs and legal risks.

The key objectives of the policy, therefore, are to:

• Be fair and transparent
• Control costs
• Prevent fraud
• Ensure compliance

If employees view the policy as being fundamentally fair, it prevents expenses from developing into a breeding ground for low, morale, discontentment and exaggerated claims.

A 2014 survey commissioned by webexpenses found that 43 percent of employees felt that an unfair company expenses policy justified them making fraudulent claims.

With a robust and fair policy in place, everyone knows where they stand. Employees may not agree, or like, aspects of the policy but they know exactly how it works, what they can expect from the company and what it expects of them.

Research suggests that implementing an effective expenses policy reduces an organisation’s transport and entertainment costs by up to 20 percent.

How to make it work?

It sounds obvious, but the most effective policies are those that people adhere to. It’s something that is understood, accepted and followed. The policy also has to be properly managed and maintained.

In this section we provide advice on what makes an effective policy.

1. Strive for fairness

The most effective policies are those which employees view as being fundamentally fair. They may not agree with all of the rules and limits, but they accept them as being fair and transparent.

While there will always be a certain amount of discontent towards an expenses policy, it is this perception of unfairness which is commonly used to justify expenses fraud. It’s how employees, who normally consider themselves law-abiding citizens, can ‘legitimise’ the act of fiddling their expenses. Michael Richards, webexpenses’ chairman

The way in which an expenses policy is presented to employees plays a large part in how it will be perceived.

Allowing employees to have an input into the process of creating or revamping an expenses policy can help to engender acceptance. Rather than being something imposed from above, to be battled against; it’s viewed as a collective agreement.

This can be done with meetings and presentations where the policy is communicated and employees are able to provide feedback.

2. Keep it simple

No matter how fair, reasonable and robust a policy is; it’s of little use if nobody reads or understands it.

Left to our own devices, few of us will voluntarily take the time needed to fully understand and absorb a long document; especially when it’s dealing with the intricacies of an organisation’s expenses.

It is vital, therefore, to present the policy in a concise, simple-to-understand and userfriendly manner. It should be viewed as a guide to help employees understand.

This means it should:

• Avoid unnecessary jargon and corporate speak.
• Be concise; provide only the information needed.
• Find a tone appropriate to your organisation’s culture.

One option used by many companies is to present the expenses policy in the form of a company ‘wiki’ - allowing it be easily searched and accessed via the company intranet.

3. Keep it updated

One of the major mistakes made with an expenses policy is to create it and then forget about it. To treat it as a box which has been ticked.

An effective policy should be thought of as a continual work in progress. It needs to be regularly updated and adapted to match changes to both your organisation and the wider legislative world.

Senior managers need to treat an expenses policy as something which is organic; always ready to adapt and change to the business environment. Michael Richards, webexpenses’ chairman

A policy should be reviewed and revised every few months to take into account price inflation, legislation updates and technological advances.

4. Choose the right tools

The way we manage our expenses has been revolutionised by advances in technology. A slow and cumbersome paper based process has been replaced by fast and efficient cloudbased systems.

It means that an expenses policy can now be managed, monitored and policed in a way not previously possible. Rather than being a static document, these tools allow policy to be seamlessly integrated into the day-to-day life of your organisation.

The webexpenses system allows managers to:

Set spending limits

The system is fully customisable to match your organisation’s policy with spending limits allocated to specific spending categories. Employees can be warned about a potential breach or they can be prevented from making an illegitimate claim.

Flag areas of interest

Various ‘flags’ can also be set to trigger an alert when certain spending limits are hit. This can be used to help identify issues before they are allowed to become resource-sapping problems.

Ensure mileage accuracy

Employees are able to record the exact distance they travel for any mileage claims. The smartphone app uses GPS technology to track a business journey with meter accuracy.

Integrate compliance

Confirmation screens can be set-up to ensure that employees are aware of any compliance requirements at the point they are making a claim. These can be customised and specific to different categories.

5. Monitor and maintain

The digital management tools now available also transform the way expenses can be monitored and maintained. A move to digital systems means that real-time information is now available for finance teams giving visibility over spend as and when it occurs.

There is no longer the need for a backlog of paper claims to build up. Claimants can now build their claims anytime and anywhere through mobile apps - uploading digital or photographed receipts to their claim, and submitting them for approval - all from their mobile device.

Without the drudgery of processing expenses, you can create a policy which is much easier to maintain. Employees no longer view it as an onerous task; it becomes a seamless part of working life.

The other major advantage is that automated systems mean that finance teams can spend less time processing paper and more time monitoring the rich set of data now generated by expense management systems.

This information can help to monitor the effect of any policy changes, as well as helping to identify troublesome trends and potential policy breaches.

Expenses policy template

Note: This template is a sample of an expenses policy – how it is formatted and written, along with the areas it should cover. It should be treated as a guide only.

01 Overview and objectives

This document provides guidelines and establishes procedures for employees incurring travel, entertainment and related expenses while on company business.

The company will reimburse all approved and reasonable expenditure incurred in undertaking company duties. The guidelines enable controlled reimbursement to take place and indicate the evidence and the authorisation required.

Amendments to the policy, procedures and expense levels should only be made with reference to the senior management team.

The objectives of the company are to:

• Provide regular reimbursements to employees
• Control costs
• Prevent fraud
• Ensure the company complies with its tax and legal obligations

The principle area of law relates to Income Tax. Under the general tax law, expense payments rank as taxable remuneration. A taxpayer may claim a deduction for expenses incurred wholly, exclusively and necessarily in the performance of duties of the employment. These rules are designed to satisfy HMRC requirements.

It is Management’s responsibility to ensure that costs are controlled and that expenses cannot be deemed to be extravagant. To set firm limits for every eventuality will always be difficult and will never suit every occasion or circumstance for expense reimbursement.

02 Supporting evidence

An expense claim must be supported by original receipts, invoices or similar. Credit card items should be accompanied by an itemised receipt giving full details of VAT numbers and amounts. Expenses policy template Webexpenses

In order for the Company to claim back VAT, we must have proper original receipts to accompany allowable claims. To meet the HMRC requirement, each receipt or invoice should list:

• VAT registration number
• Description of goods/services supplied
• The total charge, including VAT
• Name and address of supplier
• The date of supply

Individual departments will bear the cost of all reimbursable expenses incurred by their own employees and any VAT which cannot be recovered due to lack of correct sales vouchers.

03 Overnight accommodation

Where possible, it will be expected that employees use hotels where a group or corporate rate has been negotiated. If this is not possible, then a common sense attitude to expense will be expected when making bookings.

Evening meals should be chosen from the fixed price (table d’hôte) menu or equivalent when available. The company does not wish to dictate a set limit on evening meals, but claims must be reasonable and managers will not authorise any claims deemed to be extravagant.

04 Overnight incidental expenses

When staying away from home overnight on business, it is recognised that employees will be likely to incur some expenses over and above the basic costs of bed and meals.

The Company will reimburse costs for drinks, newspapers and/or telephone calls, supported by receipt up to the current HMRC limits, which are:

• UK £5.00 per night
• Overseas £10.00 per night

Costs for videos and any other entertainment are considered taxable and therefore the company will not reimburse such expenses.

Hotel bills would normally be expected to be paid by the employee and claimed for through reimbursement.

05 Breakfast/lunch/meal allowance

When a member of staff is away from the office on Company business but not staying away from home, and meets the following criteria, he can claim the reasonable excess over what he would normally spend.

• The claim must be backed up by a receipt.
• The employee must be absent from the office for more than half the working day.
• The meal and the business location must be more than five miles from home and the office.
• For Breakfast the journey must have commenced prior to 7.00am
• Where an employee is on Company business but not staying away from home, the cost of an evening meal may be claimed against receipts if the following HMRC limits are met:
  • There must be more than five miles from office to home.
  • The meal must be eaten after 7.30 pm.
  • The employee must have been working away from home for more than 10 hours.
• These are the reasonable limits set by the company for expense claims:
  • Breakfast - £6.00 with receipt 
  • Lunch - £10.00 with receipt
  • Evening meal working late away from the office - £10.00 with receipt
  • Evening meal at hotel - Fixed price menu with receipt

06 Business and staff entertainment

Every claim for entertaining (Staff and Business) must show the business purpose, where the event took place, plus the name, status and company of every person entertained.

Receipts must be provided. Where two or more Company employees are engaged in entertaining which is chargeable to the company, then the most senior person present should settle the bill.

The Company will reimburse all reasonable Business Entertainment of customers/suppliers outside the company.

In most cases, the entire cost of an entertainment expense should be charged to the category ‘Business Entertainment’, including the costs of the staff member’s meal.

Entertaining of staff, with the exception of an Annual Event for example a Christmas Party, is a taxable benefit. The company will meet the tax liability arising from reasonable and duly authorised staff entertaining.

Any lunches provided in-house for members of staff are classified as staff entertaining and are taxable. Names of attendees should be recorded. The company will meet the tax liability arising from this benefit.

Business entertainment includes gifts and hospitality of any type. When customers/suppliers stay at hotels as guests of the Company, their accommodation and meals will be paid for by the Company.

07 Domestic air and rail travel

Second Class should be used for all journeys other than those journeys in excess of 3 hours for which First Class may be used.

All bookings for air flights should be booked through the company travel agency. An exception to this rule is bookings made online with so-called ‘low cost’ airlines.

A minimum of three working days’ notice of airline ticket requirements is desirable.

08 Overseasair and rail travel

All bookings for overseas travel, including tickets for transportation, hotel reservations and any other reservations should be made through the company travel agency.

Reservations will only be made against an approved Travel Application form.

For travel within Europe, each trip must be authorised by the appropriate Director. Three working days’ notice of airline ticket requirements is desirable. Employees will arrange with the company travel agency to book the most cost effective means of travel.

Class of flight is determined as follows:

• Economy class will be used for flights of less than 3 hours duration.
• Economy Plus or equivalent will be used for flights between 3 and 5 hours.
• Lowest logical business class fare will be used for flights of more than 5 hours.
• First class flights may only be taken if the upgrade is free.
• Class of rail travel is determined as follows:
  • Second class will be used for journeys of less than 3 hours.
  • First class will be used for journeys longer than 3 hours
  • For overseas rail travel, employees may travel first class and book sleeper accommodation.

Sea travel will not normally be used where there is an alternative service by air. The use of short sea routes may be justified if due to disruption of air services or for any similar reason.

09 Foreign currency

If foreign currency is required it is often more convenient for staff to obtain this from a currency exchange or ATM abroad. The company will reimburse all costs associated with this conversion on receipt of appropriate receipts or credit card statements.

If foreign currency is required from the company, a minimum of three working days is required for currency to be ordered from the bank. Currency requests should not exceed £100.

Excess should be taken in the form of traveller’s cheques. A foreign currency advance must be cleared before an application is made for another cash or foreign currency advance.

10 Other travel-related costs

Staff with Company cars or receiving a car allowance will be expected to use their cars to and from the airport, unless parking fees would exceed the cost of a private taxi. Staff without company cars or a car allowance will be expected to use public transport or private taxi cars to and from the airport.

Claims may be made for reimbursement of the cost of applying for a visa for staff who are required to travel overseas on Company business. Note that the expenses process should not be used to pay an individual for work done, such as casual work. All such payments must be made via the payroll system and are liable for Income Tax and NI considerations.

11 Company car policy

The Company will reimburse mileage at the following rates:

• Company car drivers 25p per mile
• Car allowance recipients 25p per mile
• Use of Private Car 45p per mile for first 10,000 miles in tax year 25p per mile thereafter.
• Passengers at 5p per mile
• Petrol for private journeys will be paid for by the employee. The private mileage deduction for staff with petrol cards is 25p per mile.

Servicing costs for company cars will be reimbursed in line with the dealer recommendations and car parking expenses in connection with business calls.

The company will not pay any fines in connection with Road Traffic Act offences nor will the Company reimburse car wash or valet costs. It is the responsibility of the driver to ensure the car in his care is maintained to a reasonable level of cleanliness.

Employees who receive a Company Car Allowance are expected to have a vehicle available for use when required to carry out their duties. This includes travel to and from venues associated with the business. Applicable insurance for that vehicle is the responsibility of the employee to arrange.

When two or more employees are travelling together and one is the recipient of a company car or car allowance, that employee is expected to drive and account for the mileage.

12 Training courses

Accommodation and transport in conjunction with training courses is subject to the same rules as for other business-related travel.

13 Membership of Professional Bodies

The Company will pay subscriptions to approved professional bodies on behalf of employees where an employee is requested to take up membership by the Company, in the interests of the Company. In some cases, subscriptions paid may be taxable and the employee should be aware that he may bear the additional cost.

14 Telephone-related costs

When a private telephone is used for business calls, employees may claim the cost of business calls plus VAT quarterly, on submission of the telephone bill. Where significant business is conducted from a private address a separate business line must be installed and the bill addressed directly to the company. The company will in these circumstances pay the rental and all calls plus VAT.

15 Purchases of equipment

Subject to the cost centre Manager’s approval, various pieces of equipment, including IT equipment, may be purchased for employees’ use at work or home. All such purchases should be made through the Company Administrator using a Capital Expenditure form and purchase order and not by including on an expense claim form. When an employee leaves or changes job, equipment must be returned to the Human Resources department for redeployment.

16 Credit card fees

The annual fee for a personal credit card to be used on Company business is not refundable by the company.

CIPP’s top tips on expenses policy - March 2015

Top tips from the CIPPS

1. Make sure the expenses system is communicated openly and explained clearly to all staff during their time at the company and before new employees join.
2. Keep it simple! If the current expenses system is complex and poorly explained, it could give rise for misinterpretation or mistakes submitted by the employee. Think, is this causing confusion and how can it be rectified?
3. Why not consider a crib sheet for employees to keep on their desk listing tips of ways to complete the expenses process? A handy guide explaining the process for submitting claims could speed up the process.
4. Be sure to have any changes in information or accompanying documentation handed to the employee before he/she starts in their new role to ensure that they understand the new and updated process for submitting claims.
5. Don’t be afraid to review procedures and take reactive decisions accordingly. For instance, it might well be that as a company grows in stature the current expenses model may not be suitable for the larger organisation. Consider other procedures or software that might help.
6. Always seek guidance from trained payroll and HR professionals before making any alterations to the expenses procedures. Remember, expert advice can save money in the future and not everybody can be an expert in the field. Take guidance from those that are.
7. If in doubt ask! If something doesn't look right, then don’t be afraid to escalate up to senior staff and seek a second - or in some cases a third opinion before processing payments.
8. Be sure to maintain dialogue with other departments in the organisation and see if you can improve the system in your department based on other operations and procedures.
9. Never be afraid to say no. If the claim is extravagant then the employee cannot be expected to be reimbursed for it and be sure to reinforce the policy to staff if something doesn't look right.
10. Always look for ways to save money where possible. The economy is fluid and prices can vary constantly, whilst the train may have been cheaper one day to take to a meeting, it could be that is no longer the case and flights are cheaper. How does this impact on the current procedures?