Whats the best way to track employee spending?

What’s The Best Way To Track Employee Spending

Every employer wants to be able to trust their employees, but when it comes to expenses both employer and employee need a secure system for tracking spending. Both parties need clarity about what constitutes legitimate employee expenses and how they will be paid.

Employee Expenses – A Quick Definition

HMRC defines ‘expenses’ in the following terms: ‘something only counts as a business expense if your employee needs it to do their job.’  There are strict HMRC rules about what expenses employers can pay employees without them incurring additional tax.  All businesses should make employees aware of what constitutes a legitimate employee expense.

How to Track Employee Spending/Expenses

1. Prepaid Cards: Employer Control, Employee Convenience

One of the best ways to give your employees financial autonomy and track their spending is to provide them with our prepaid business card. A prepaid card prevents overspending because the user can only spend the money which has been loaded onto the card.  This allows for differentiation between senior and junior staff, in terms of the sums available, but gives all staff the convenience of immediate access to expenses when they need it.  Our prepaid company cards can also be loaded with foreign currency without incurring foreign exchange fees.

Expenditure can be monitored in real-time, both at home and abroad and our ‘payment control dashboard’ enables the employer to add rules and limits to define where and how employees can use their cards. The result is a virtual company card without the risks that come with a standalone credit or debit card.

2. Clear, Unambiguous Guidelines

Your employees should have access to clear guidelines about what constitutes a legitimate business expense and the procedure by which they are recorded.  Traditionally, this has required a paper trail of expenses and receipts.  The Soldo solution provides real-time tracking and enables the employer to impose constraints on transactions and locations.

3. Set Budgets

Set expense budgets for every employee. This is good for morale and demonstrates your confidence in every member of staff to manage expenses responsibly. Define different expense categories such as restaurant bills, supplies and equipment, travel and hotels and set spending limits for each.

Soldo enables you to pre-load cash amounts in accordance with role and seniority at individual cardholder level. With our ‘payment control dashboard’ you can monitor spending in real-time, adjust funds available and define how and where employees use their cards.

4. Set Reimbursement Time Limits

It is vital to set time limits for reimbursements, such as one week or one month. This means that you won’t end up with several months of invoices to go through, so it will be easy for you to stay on top of payments.

It also means that it will be easier for you to predict how much employees spend per month and will pre-empt any cash flow shocks associated with rolled-up expense claims. A Soldo prepaid Mastercard removes the need for reimbursement entirely.  It saves the employer time and money on administration, such as expense reporting, and it is popular with employees because they do not have to spend their money on the company’s behalf and they don’t have to spend time keeping a paper record of their expenses, they can just get on with doing their job.

5. Communicate the Policy

Once you have set all your limits and rules, you should notify every employee, explaining the rules in detail. This means that everyone will understand how to use their card. Provide a dedicated finance team email address for staff to use if they require help.

6. Dealing with Fraud

There is an unhelpful tradition in British business that expenses are a perk of the job, to be exploited to the full.  Employees need to understand that expenses are to enable everyone to do their job without hinderance and that mutual trust is an important part of an employee’s contract with their employer.  The transparency of the Soldo system means that inappropriate expenditure can be dealt with immediately without the need for ever having to resort to time wasting and destabilising fraud investigations.

Employee Expenses and Tax

What Employee Expenses are Tax Deductible?

The HMRC rules which govern this area are complex and subject to change and adjustment.  There are two key conditions which determine those expenses which are tax deductible.

HMRC will usually accept that expenses which are reimbursed by the employer are not taxable benefits.  The following expenses are currently subject to tax relief.

NB: This information is, to the best of our knowledge, accurate at the time of writing but you should always seek the advice of a qualified accountant with relation to expenses.

What Employee Expenses are not Tax Deductible?

Personal expenses which are particular to an individual and would not necessarily be incurred by another employee are not tax deductible.  Thus, if an employee required childcare in order to attend an evening event, this expense would not be tax deductible.  Travel to and from work and the additional purchase of non-specialist clothing are also not tax deductible.  Employees who choose to work from home are not eligible for tax deductible expenses.

NB: This information is, to the best of our knowledge, accurate at the time of writing but you should always seek the advice of a qualified accountant with relation to expenses.

Employee Expenses and VAT

This is a complex area and businesses are advised to seek guidance from a qualified accountant, but there are instances where VAT can be reclaimed on employee expenses.  Business travel is one such area, as long as the employee is more than five miles away, for more than five hours, from their usual place of work.  The claim must be based on evidence of actual expenditure rather than flat rate allowance.

Employee Expenses When Working from Home

Employees can claim up to £4 a week in recompense for expenses incurred as a result of working from home.  No records of phone usage or electricity consumption are necessary, but the employee is not eligible for expenses if they have elected to work from home.  Home broadband subscription costs are not allowable as expenses.

Accounting Software Considerations

Sage 50 Payroll can be used to calculate the value of employees’ expenses.  Companies can either create an online bank account for business to record employee expenses or record the expense and liability by posting a journal.

QuickBooks connects to bank accounts, credit cards and PayPal.  It imports and categorises expenses and runs reports.  Expenses can be recorded by employees by saving photos of the receipts to the mobile app.  All expenses are sorted into categories and tracked throughout the year.

The Xero mobile app allows employees to record expenses on the go.  It enables employers to approve or decline expenses payments to employees or to bill the expenses to a customer.

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