Myth Busters - Concur Technologies

Myth Busters

A Helpful Guide to Busting Myths about
Business Expenses, VAT Reclaim and Mileage

Myth Busters: a Helpful CHAPTERS:
Guide to Busting Business
Expenses, VAT Reclaim,
Travel and Mileage Myths
in the UK

Want to know about common mileage myths?
Not sure whether the government will accept
digital copies of receipts or not? Or are you
simply curious about how much confusion there
is around reclaiming VAT? This helpful, four-
part Myth Busters Guide busts 18 commonly
misunderstood myths about business expenses,
VAT reclaim on travel expenses, and mileage.

01 Part 1: an Introduction to What’s
Claimable on Expenses in the UK

We bust some myths about what’s really
claimable on expenses.

When it comes to employee expenses the
rules and guidelines are not always obvious.
Our introduction hopefully clears up some of
the myths surrounding the subject.

01

MYTH 1 – PAYING EXPENSES CAN SUPPLEMENT
EMPLOYEES’ SALARIES, TAX-FREE

Wrong! Expenses payments can be made tax-free, but only if they meet
certain criteria.
The Golden Rule for allowances and expenses, according to HMRC, is as
follows: “an employee may deduct expenses incurred wholly, exclusively
and necessarily in performing their duties.”
So, yes, 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.
For your information – here’s a list of examples of expenses that typically
qualify to be paid tax-free.

• Travel (including business mileage)
• Accommodation
• Subsistence
• Protective clothing
• Training
• Eye tests
• Professional subscriptions
• Charitable donations.

Helpful Resource:
Read the Expenses, VAT
and HMRC Compliance in

a Nutshell e-book

MYTH 2 – STAFF PARTIES AND EVENTS ARE TOTALLY TAX
DEDUCTIBLE

Er… not quite… When it comes to staff shindigs and special events, there is some
leeway to claim tax back, but the rules are very strict.
To set the record straight, your annual employee event will be exempt from tax,
National Insurance Contributions 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 to end all parties 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.

MYTH 3 – EMPLOYEES DON’T FIDDLE THEIR EXPENSES

Kind of wrong. Your employees, like most, are keen to do a good job, but with
the best will in the world, paper-based expense systems are always open to
abuse, errors, lost receipts and miscalculations. And here’s the funny thing –
your employees are using sat-navs, smart-phones and iPads in their daily lives
– and some companies are still asking them to hand in smudgy expense sheets
like it was the 1950s! It just doesn’t make sense.

Helpful Resource:
Download the
Expenses Fraud

Demystified e-book

02 Part 2: Myths about VAT
and UK Travel Expenses

We bust some myths about VAT, tax
and travel expenses.

Because travel and mileage costs make up
the greater part of all company expenses,
they can become a real challenge for both
the accounts department and claimants
alike if they’re not managed properly.

02

MYTH 4 – ALL COMPANY CARS ARE SUBJECT TO TAXATION

Actually, no. Whilst a company car can fall into many taxation classes based
on mileage, engine size, and usage there is absolutely no tax to pay on the
following company cars:

Pool cars

Pool cars are a very simple way of providing convenient transport for
employees who need to travel on company business from time to time. There
is no stipulation on the type of vehicle, and the pool car can even be used for
transport emergencies such as train strikes. The only requirements to operate a
pool car are that:

• The car is available to more than one employee
• The car is only used for business
• The car is not kept at employees’ homes when not in use.
So whether your pool car is a Mazda or a Mercedes, it carries no tax reporting
requirements and therefore no tax to pay. But, if employees claim back for the
fuel they use in the pool car, that is taxable.

Disability cars

Providing a car for an employee with a disability is looked on with generosity by
HMRC. As long as the car has been adapted for a person with specific needs
(more than just putting on a disabled parking sign), you’ll have no tax to pay.

As with a pool car, it can only be used for business (not for personal trips).
Disability cars, however, can also generously be used for commuting. If the
disability car is also used for private use, however, then you need to report the
car to HMRC.

Helpful Resource:

Watch the Keeping the
Tax Man Happy webinar

MYTH 5 – YOU CAN RECLAIM VAT ON ALL TRAVEL EXPENSES

Yes.... and no. Confused? It’s quite simple really. Your company must pay the full
costs, or a part of them, for travel if employees are working for your company
away from their normal place of business. In this case it’s possible to reclaim the
VAT incurred on these expenses. If, however, you already pay your employees a
flat rate for their travel and subsistence costs, then you cannot reclaim all of the
VAT. (More about this later…)

Oh yes, there are strict guidelines on what ‘constitutes an employee’ for the
purposes of reclaiming VAT.

You can reclaim VAT on expenses incurred by:
• People directly employed by your company
• Directors, partners or any other managers
• Self-employed people (subsistence allowance only)
• Helpers and stewards.

You can’t reclaim VAT on expenses incurred by:
• Shareholders (unless they also work for you)
• Pensioners and former workers
• Job applicants.

MYTH 6 – RECLAIMING VAT ON MILEAGE ISN’T WORTH
THE EFFORT

Actually, it is. Calculating VAT on mileage may seem complicated, but it doesn’t
have to be – and it’s worth getting right. In fact, if VAT on mileage isn’t being
reclaimed properly your company could be losing out on up to 3p per mile! Get
your mileage system right, and reclaiming VAT and dealing with HMRC will be
simpler, faster and more accurate – plus you’ll get back the VAT you’re really
owed instead of ploughing it all into the government’s coffers.

Helpful Resource:

Read the How to
Reclaim VAT on Fuel

blog

MYTH 7 – DEALING WITH HMRC IS TOO COMPLICATED

Believe it or not, HMRC doesn’t want to spend all day checking your VAT
claims and chasing you for up lost receipts or out-of-policy expenses.
But paper-based systems often contain inaccuracies, lost paperwork or
miscalculations that HMRC simply has to check up on. But, if you’re using
an online system, all the information is bang up to date and conforms to
legal requirements, which makes dealing with HMRC a piece of cake.

MYTH 8 – YOU MUST HAVE ORIGINAL PAPER RECEIPTS TO
MEET HMRC REQUIREMENTS

Not necessarily. The common misconception 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. The catch is, they must
be clearly legible, easily accessible, printable and not manipulated
or editable.
Moreover, 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.

Helpful Resource:
Find out How to
never do last-minute
expenses again. A
true-story blog.

03 Part 3: the Real Facts about UK
Business Mileage

We bust some myths about mileage.

Mileage isn’t just the most commonly claimed business
expense of all – it’s also one of the most complicated, most
misunderstood – and most exaggerated. It’s often harder
than it needs to be for you to reclaim VAT on it. And it’s
really easy for HMRC to check if your business mileage
claims are accurate.

03

MYTH 9 – MILEAGE ISN’T A BIG BUSINESS EXPENSE

Wrong. You might be surprised to know that business mileage is by far the
most commonly claimed expense for UK companies – and it’s growing
rapidly. The average mileage claim has increased in cost by over 30% in
the last three years (thanks to the VAT hike in 2011) – and if you’re not
reclaiming the right amount of VAT on it, the cost to your company is even
greater. So, instead of taking your fuel costs for granted – you really need
to start controlling them.

MYTH 10 – EMPLOYEES CAN CLAIM MILEAGE FROM THEIR
HOMES TO THE OFFICE

Er. No. This is a popular misconception. Travel to and from the office is
absolutely non-allowable as a mileage expense. The office, no matter how
frequently or infrequently employees are actually working there, is officially
classified as their place of work (unless they don’t have a desk or are
classified as home workers).
However, employees can claim mileage for travel between different offices
as long as these other offices are not their normal places of work. But,
because tax laws are really complicated, unfortunately if your company has
more than one office in London, employees can’t claim for train/tube tickets
going between them.

Helpful Resource:
Understand why
Employees Are
Subsidising Business
Mileage – a blog

MYTH 11 – MILEAGE EXPENSES COVER THE TOTAL COSTS
OF THE DRIVE

Surprisingly no. It may seem incredible, but if you do the maths you’ll realise
that when it comes to business mileage, many employees are actually
subsidising their business trips in the region of 35p a mile! And when
mileage is claimed, there are strict rules to follow. For example, VAT receipts
have to be dated before the time of travel to which they relate, or they’ll be
invalid. How does HMRC know? One company using a manual expenses
system was found by HMRC to be re-using old fuel receipts to make VAT
claims (it was the Nectar Card numbers that gave the game away).

MYTH 12 – ALL MILEAGE CLAIMS SHOULD ONLY BE FOR
THE SHORTEST DISTANCE

Not exactly. This seems logical. After all, why wouldn’t anyone go
the shortest route? But to be totally fair, you should be allowing your
employees to travel the most ‘effective’ route. For example the shortest
distance between north and south London might be through the middle –
but you try doing that during the rush hour – you’ll never get there! Your
company policy should allow employees to claim the actual route travelled,
even if it was longer, if they had to take a detour due to unforeseen
circumstances (or rush hour traffic). You can easily require them to add a
note explaining why they took that route.

Helpful Resource:
5 Reasons Businesses
Don’t Automate Their
Expenses… and why they
should – a white paper

MYTH 13 – EMPLOYEES CAN TRAVEL BY CAR ON BUSINESS
WITHOUT HAVING BUSINESS INSURANCE

Dangerously wrong! If employees use their cars for any business trip
(outside of commuting to and from your office every day), even if it’s
just dropping a colleague off at the station or travelling from one office
to another, then they need business insurance. If they aren’t insured for
business travel and have an accident, they won’t be covered. Their current
insurance might actually already cover this, but you need to make sure
they’ve checked. It’s not worth taking the risk.

MYTH 14 – YOU CAN PAY ANY MILEAGE ALLOWANCE YOU
WANT TO

Yes, it’s true! You can even offer your employees £10 per mile if you feel
generous – but you’ll have to pay tax on it.
Mileage Allowance Payments (MAPs) are the payments your company makes
to an employee for expenses related to the use of their own vehicle for:

• Journeys that form part of their work duties
• Journeys for their attendance at a temporary workplace.
However, if you want to avoid paying tax on these payments, you have to
follow the approved mileage allowance guidelines. Keep reading...

Helpful Resource:
How Google Maps can
calculate the mileage

for you – within your
expenses claim! An

introduction

MYTH 15 – ALL MILEAGE ALLOWANCES ARE TAX-FREE

No. Only Approved Mileage Allowance Payments (AMAPs) are tax-
exempt. While the term ‘AMAPs’ may sound a bit scary, calculating them
is surprisingly straightforward. Here are the Approved Mileage Allowance
Payments from 2011/2012 onwards1.

Tax rates per business mile

Type of vehicle First 10,000 miles Above 10,000

Cars and vans 45p 25p
Motorcycles 24p 24p
Bicycles 20p 20p

So, if an employee travels 12,000 business miles in their own car or van,
the approved amount for the year would be £5,000 (10,000 x 45p plus
2000 x 25p).

Oh yes, and just because an employee might change their car or van, it
doesn’t mean they can start the count again for their new vehicle. When
they say employees can claim the ‘first 10,000 miles for each vehicle’, it
only applies to one vehicle per person per year.

Helpful Resource: 1 http://www.hmrc.gov.uk/payerti/exb/a-z/m/mileage-expenses.htm

Explanations from
HMRC on Mileage
Allowances – their

website

04 Part 4: Why Reading this
Document isn’t Enough

We bust some myths about expense
automation solutions.

Now that we’ve busted a whole lot of myths about
business travel, expenses and mileage – here’s the
biggest myth of all we need to bust: the myth that it’s
okay to keep doing expenses on spreadsheets.

04

MYTH 16 – HAVING AN ‘EXPENSES STRATEGY’ IS NOT
A PRIORITY

Expenses might not seem like an urgent enough issue when there are so
many other priorities in our working lives. However, not having a really
well thought out expenses policy has all sorts of drawbacks, especially in
today’s economic climate. In pure money terms, out-of- policy expenses
cost UK businesses more than £692 million per year2.

But there are other drawbacks too. An overly generous, or ungenerous,
expenses strategy can cause problems. High costs of administration, low
staff morale and inaccurate claims all point to an ineffective expenses
strategy which can cause real pain in your bottom line.

On an emotional level, an expenses policy which is deemed unfair can
lead to employee disenchantment (especially if employees are taking too
long to get their expenses processed). Above all else, a lack of systematic
checks can also lead to difficulty in compiling yearly accounts and the
prospect of investigation by HMRC. Now that is taxing!

Companies have an obligation to make sure that their expense policy
is available to all employees, and presented to them. It is an HMRC
recommendation that your policy is readily accessible and publicised. If you
don’t already have a policy, download a template to get yours started now.

Helpful Resource: 2 http://www.concur.com/en-uk/resource-center?modalNID=4034&resourceType=document

Download A Best-
Practice Expenses
Policy (including a

template) – a
white paper

MYTH 17 – IT’S NOT POSSIBLE TO SORT OUT
EXPENSES EASILY

The good news is that it is possible. Moreover, you don’t have to sort
it out – it can all be sorted out for you. There are well-proven expense
management software solutions which can be implemented using cloud
technology with minimum disruption to your business and massive cost
and time-savings. It’s important for your company to have its own ideas of
what counts as an acceptable expense and put this down into a policy of
some description, but after this, everything can be sorted out quickly and
efficiently if you have the right support.

MYTH 18 – SPREADSHEETS WITH COMPLEX CALCULATIONS
COUNT AS AN AUTOMATED SYSTEM

Not true. Even the best spreadsheet in the world is still an over
complicated, and therefore inefficient way of managing your employees’
expenses. When you consider that that 35% of senior SMB finance leaders
say that over-complicated processes cause the greatest inefficiency in their
department, followed by wasted time (26%) and duplication (20%3), doesn’t
it just make sense to take the pain out of expenses?

Helpful Resource: 3. http://www.concur.com/en-uk/resource-center?modalNID=4539&resourceType=document

It’s true! 74% of
companies still do
expenses manually,
or on a spreadsheet.
Read the research.

Helpful Resource: Myths busted!

Stop doing expenses on Now that you’re clear about the real deal behind these myths it’s time to
a spreadsheet. Download say goodbye to out-dated and painful manual processes.
‘Expense Management in
5 Steps. The “Don’t Wait WHY AN AUTOMATED EXPENSE MANAGEMENT SOLUTION
IS BETTER:
to Fix It” Guide’
• No more long hours spent inputting receipts:
Doing expenses on the move lets your employees be more productive
so they don’t have to deal with a pile of expenses waiting for them
when they get back to the office.

• Faster, more productive processes overall:
Managers can approve payments without hassle; finance teams can
check them easily, and employees can be paid more quickly.

• Better data visibility – which means better business decisions:
To quote a popular management saying: “if you can’t measure it, you
can’t manage it.” An automated solution lets senior management see
exactly who’s claiming what, when, making it easier to monitor spend
levels and trends across the business.

• The tax man will be happy:
HMRC likes processes, guidelines and receipts. An automated process
gives them confidence that you’re keeping track of employees’
expenses and complying with the rules.

Don’t wait to make your life easier. There’s a better way – which will keep
your employees, finance team, business leaders and the tax man happy –
all at the same time.

DON’T STOP NOW. THE NEXT STEP IS TO AUTOMATE YOUR
COMPANY’S EXPENSES

Think about it: you wouldn’t use a manual process to do your payroll, or a
Cathedral ledger book to do your accounts. So why are just over a quarter
of businesses still using completely manual processes (handwritten or
word-processed claims) to do expenses?

More and more companies are looking to stay ahead of the game with
automation. After all, managing expenses is about more than just balancing
your budget. It’s about efficiency and cost control; knowing where your
money is going, what your employees are spending to bring in new
business, and where you might be able to reduce costs – all of which is
fully visible with an automated solution.

Try Concur – free

TAKE A TEST DRIVE

You can see how easy it really is to do your expenses online. Go to www.
concur.com/en-uk/free-trial and get started now!

WHY CONCUR?

Concur makes doing expenses less painful – for businesses and
employees. We’ve got a suite of really cool tools that live online, in the
cloud, to help employees get through the process painlessly; let finance
teams streamline processes and payment; and to give managers and senior
leaders full visibility of who’s spending what on expenses, where.

With no up-front fees, no extended tie-in and the closest thing to a plug-
and-play solution available on the market, Concur brings 20 years of
experience of automating expenses for companies of all sizes to a best-
practice, templated approach that can literally be up and running in days, or
even hours.

TAKE CONTACT READ
A TEST US CASE
DRIVE STUDIES

ABOUT CONCUR

Concur is a leading provider of integrated travel and expense management solutions. Our adaptable cloud-based
and mobile solutions help companies and their employees control costs and save time. Concur’s systems adapt to
individual employee preferences and scale to meet the needs of companies from small to large.
Learn more at www.concur.co.uk

©2014 Concur, all rights reserved. Concur is a registered trademark of Concur Technologies. All other company and product names are the
property of their respective manufacturers. Specifications and other details listed are accurate as of printing, but may change without notice.
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