Employee Expenses

In the workplace, employees may spend money on business-related costs.

Expenses are quite tricky to manage, so it’s important to keep track of each cost. That way, you can pay tax and National Insurance on the likes of company cars, health insurance, and travel requirements.

Discover what work expenses are, what employees can claim and how to report them to stay in line with the law.

What Are Work Expenses?

Work expenses are payments an employee has personally made, because of the nature or circumstance of their job.

It’s the amount of money spent on goods and services. Employee expenses are required to be reimbursed by employers.

What Expenses Can an Employee Claim?

There are several allowable expenses employees can claim. These include:

  • Temporary accommodation.
  • Mileage on personal or company vehicles.
  • Commute on public transport or bicycles.
  • Car parking payments.
  • Food.
  • Work uniform.

HMRC have certain conditions which need to be met so that you don’t incur extra tax. The following conditions must be met to qualify:

  1. The expense should be incurred by whoever was doing the job.
  2. The expense was necessary for them to do the work.
  3. The expense was acquired in the performance of their duties.
  4. The expense was ‘wholly and exclusively’ for their work.

How Do Employees Claim Expenses?

Employers need to keep track of expenses via reports. These reports outline spending, receipts, and invoices.

The reports must show the:

  • Employee’s name.
  • Date of the purchase.
  • Type of purchase.
  • Price of the purchase.

Conducting monthly or annual reports will help you keep track on a regular basis.

How to manage employee expenses

This is a vital step in businesses and without it, costs could get out of control.

Traditionally, managing expenses was a time-consuming and complicated task to complete. Today, you can organise your expenses using three steps:

  1. Use a fair policy: this should clearly state what the process is. Avoid using complex legal language that could confuse your staff members.
  2. Consider everyone: the process must take into consideration the needs of your business. If employees need to spend money for work purposes, you should look to repay them.
  3. Make your process easy: make this a painless experience for your staff. Trust your staff and provide them with the software that let allows them to document their expenses.

Are employees’ wages an expense?

Salaries and wages are forms of compensation that are paid to your employees.

These are expenses reported on the company’s income statement. In addition to the amount paid to employees, you can also deduct National Insurance and PAYE which are paid to HMRC.

Your salary as an employer will also be deductible.

Are expenses taxable?

Yes, but only if you haven’t already reimbursed the expenses. HM Revenue and Customs outline expenses are taxed, just like wages.

If you owe your employee less than £2,500, they can recoup their tax through PAYE. In this case, your employee won’t get a direct refund. Instead, they’ll pay less tax over the year.

Managing Employee Expenses With BrightHR

Having a clear process in place for job expenses is crucial for your business.

It will allow you to be more organised and maintain good relationships with your employees.

By showing a clear expense process, you can avoid hefty penalties and court hearings.

BrightHR can help you organise your employee expenses without the hassle. Our POP Expense Tracker App can ensure you manage your expenses with ease.

Book in a demo today or call us on 08007832806

Have a question?

Ask away, we’ve got lightning fast answers for UK business owners and employers powered by qualified experts.


    Share this article

    More on pay and benefits

    How much should you pay an apprentice?

    One of the benefits of using an apprenticeship programme is you can hire young, talented, and enthusiastic staff who are more cost effective…

    Resignation counter offer

    If you’re losing an important employee to a competitor or other circumstance, then you may be wondering if you can do anything to stop them…

    Deductions from Wages

    From time to time, there may be occasions when you might have to make deductions from wages. This can be confusing for your employees, so…

    Health and wellbeing in the workplace

    The quality of their physical health and psychological wellbeing is key to a happy, high performing workforce. Not only that, poor health…

    Voluntary overtime pay for holidays

    The law around overtime holiday pay continues to evolve. Because of this, holiday pay entitlement for staff who work overtime is a trickier…

    Pension laws

    Since the introduction of compulsory automatic enrolment for workers in 2012, HR departments have been getting to grips with a new set of…

    Employee progression in your business

    Your employees expect to move onwards and upwards, increasing their skill-set, their responsibility and their salary . And yet, it seems…

    Salaries and wages for your staff

    But when it comes to attracting, rewarding and retaining talent, it’s best to start with the most fundamental bit: salary. Salaries…

    Bonuses for employees

    They can help attract and retain staff who value financial incentives at work — which, let’s face it, is most people. And performance…

    Can employers claim back sick pay during coronavirus?

    As the coronavirus pandemic continues, the UK government is providing financial support to businesses with the Job Retention Scheme. But you…

    Employee pay and benefits

    Offering employee benefits can have a huge impact on your business. They can improve staff happiness, help to draw in new talent, and help…