By Sanjay Pareck, MD of WebExpenses
After HMRC was given a £900 million war-chest to close the tax net around expenses cheats in 2010 a round of spot-checks on businesses found that 40% still have 'issues' with record-keeping.
That could be the tip of the iceberg; tax inspectors plan new 'flash inspections' of 12,000 company records in the next year.
Expenses-management is currently so lax that many firms have no written rules and less than 2% of claims are investigated, despite this being a HMRC requirement.
Many firms cite red tape as the biggest roadblock to growth, and auditing an array of claims across a travelling workforce, incurring costs in different contexts, through different payment methods and currencies, is prohibitively expensive for small to medium sized enterprises (SMEs). A staggering 63% of small firms spend more time managing expenses than generating new business.
SMEs are now caught in a deadly Catch 22: complying with a dense thicket of tax rules is leeching vital pounds and hours from the business, yet a failure to keep proper records could cost even more, in fines, interest and tax repayments.
Yet there is a loophole: HMRC says it won’t target companies that have 'adequate procedures in place' to prevent fraud. And those businesses that implement strong expense policies, will find huge tax rewards are just around the corner.
Ditch The Paperwork
Red tape is the biggest obstacle to transparent and efficient expenses-management. Storing and sifting a mountain of paper receipts, then manually entering everything on a spreadsheet, is not only heavily labour-intensive, but likely to lead to dangerous oversights. Businesses need to move towards electronic claims and receipts which eliminate the need for paperwork, and seek to automate as much of the expenses-management process as possible.
Keep A Forensic Audit Trail
Lost receipts cost businesses millions of pounds a year in unclaimed tax. Electronic receipts eliminate the risk of error at both ends: employees no longer need to carry receipts, but can enter claims and evidence as soon as costs are incurred; Finance Departments no longer need to file claims and receipts, as they are automatically stored online, instantly available to tax inspectors.
Where Ever, When Ever
With costs now incurred on everything from personal cards to Tablets and mobile travel sites, businesses need to speed up and integrate the whole expense-management process, so that a claim entered anywhere, through any method, can be remotely monitored and checked.
Companies should take full advantage of the global connectivity provided by the internet, enabling spending details to be uploaded from anywhere and viewed in real-time from a remote office.
Making Compliance Easy
If fraud is discovered, it is vital that businesses can show tax inspectors that they attempted to enforce the rules, by informing employees of the law and checking claims for compliance. With such a complex array of tax rules, many false claims are simply the result of errors, and businesses can easily reduce this, by notifying employees of incorrect claims at the point of entry.
Software can automatically notify employees of false claims, and businesses can make policies instantly available, on-demand, through on-screen tabs, accessible from anywhere. Staff should be encouraged to send electronic claims through email or SMS, use phone cameras to snap receipts, upload card details online, or take screenshots of online booking forms. The speed and ease with which employees can then get their claims approved, and be reimbursed, encourages them to enter claims correctly.
Travel is the single biggest expenses item, and exaggerated mileage is both the most common type of expenses fraud, and the easiest to combat.
Businesses must end their dependence on employee travel 'estimates' and overworked admin staff. Satellite mapping now provides postcode-to-postcode verification of each employee journey, while software can automate the process of checking every business mile against tax policy. Companies should combine mapping with Pre Trip Approval to plan tax-compliant journeys in advance.
Encourage Voluntary Compliance
No expenses-management system can eliminate human dishonesty entirely, but employers can foster a transparent and fair business climate which discourages excess and promotes prudence.
Finance Departments must enforce expenses rules fairly across all Departments and tiers of employee. They should reward honest employees, while openly punishing excess. If the system is seen to be fair, staff are less likely to falsify claims. Cloud-computing gives Finance Departments up-to-date records of employee expenditure.
Educate your Key Finance Staff
There are some advantages to the complex rules that face the typical company. If your key staff are aware of the rules and tax legislation that exists then they can make the system work for them. These rules can change in subtle ways and the increasing desire for government to raise tax revenues will mean that it could be easy for companies to fall foul of an ever changing tax landscape. Regular, approved CPD expenses and benefits training is key to ensuring that the right staff are aware of the changing sands of tax compliance.
Businesses that successfully differentiate between tax-exempt and taxable expenditure, in every context, will both avoid fines and reap massive tax rewards.
There are tax deductions on everything from 'incidental expenses', to 'travel costs' for a relocating employee’s family. And if businesses instantly pay the correct amount on tax for each item, in each context, they will avoid interest on late payments.
Businesses should take advantage of number-crunching software which can automatically differentiate between the complex HMRC definition of 'business' and 'recreation' in every context, work out how much tax is owed for each type of claim, and pre-plan whole trips around maximising tax relief.
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