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They need to understand if a payment you make to an employee is either taxable or to reimburse a legitimate business expense.

The burden to provide proof rests on the person in your organisation who maintains this and they could be required to provide up to three years worth of information.

HM Revenue & Customs (HMRC) do not specify exactly what information they require, as it will vary from company to company.

You should be able to show, however, the date the expense claim occurred, what that expense was, the reason for the expense and what company or person initiated the expense.

If a meal was consumed you must show who attended and how they are associated with your company. With a paper based system it is very time consuming to ensure you have collected all this information correctly.

Employees may put data in fields but they will not always explain the expense.

One company recently reported a £150,000 tax fine simply because they did not have enough information to prove their expenses were legitimate business expenditure.

If the attached graph reflects your employee’s lack of documented employee expense claims your fine will be in excess of £250,000.

The tax inspector can go back three years, can charge you interest on the perceived under paid tax and also impose a fine. The tax to pay for a 40 per cent taxpayer is 82 per cent of the cost of the expense.

For example: a 40 per cent tax payer claiming £95,000 worth of expenses a year over a three year period that are all accounted to be benefits in kind will incur 82 per cent of the costs of the expenses, plus a 20 per cent fine and 10 per cent a year in interest will equate to a total penalty cost of £308,484.

Without implementing and enforcing your company employee business expenses policy, which ensures you are collecting enough and the correct information, you are opening yourself up to the unknown.

A tax services manager from one of the top 10 accountancy firms delivered a very compelling presentation on Employer Compliance Reviews to Software Europes clients.

He reported that major problems can arise from incorrect treatment of expenses and benefits with large liabilities if you get this wrong.

It is strongly recommended that companies implement a more robust procedure especially tightening the expense policy and procedures with the help of an automated system, such as expenses.

To put it simply, an employee who simply doesn't include all the necessary information required by HMRC could open you up to hefty penalties from the HMRC.

1. Monthly mileage

At the end of the month it is very easy for an employee to simply total up their business mileage and submit one claim for it all, without itemising each trip and giving a legitimate business reason.

This approach is simple for the employee and whilst their line manager may know it is valid and trusts his employee; but without correctly documenting what the expense was for, the tax inspector would have the right to declare it as ‘Benefits in Kind’.

2. Monthly meals

Similarly to mileage, an employee may choose to combine the cost of all meals incurred.

There are many reasons why an employee would reclaim the cost of a meal, however, with many falling under the heading ‘benefits in kind’.

When it comes to meals you must log why the expenses occurred and who attended to avoid being charged any penalty.

3. No reason for claim

If the claimant cannot provide a reason for an expenses claim you must question why they should be reimbursed.

By the same measure if not enough information is provided you may also be subject to scrutiny from the tax inspector.

Without a reason HMRC could decide it is entertainment or benefits in kind and both will cause you to pay additional tax.

4. Claims not stating who the expense was for

Again, HMRC expects expense payments to be for a business reason, you need to state who has caused you to spend the money.

Many claimants will either state nothing or put the name of the restaurant, taxi firm or train station where the expense was made, but, it does not show why the expense was made.

An automated expense management system could make it easier for your employees to enter their claims concisely.

It can prevent the claim being processed unless they complete the mandatory fields required by HMRC.

Employees could still input inaccurate information, by simply entering the wrong information into mandatory fields.

A good software programme should allow you to easily report on all fields on the claim form page, including the company name, to ensure that they have entered correct data.

Adele Briggs is operations manager at Software Europe.

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