Paying expenses correctly?

Employees and directors frequently incur costs on behalf of their employer, including travel, accommodation, subsistence and mileage.

Reimbursing these costs may appear straightforward, but the tax treatment depends on the nature of the expense and the circumstances in which it was incurred.

For example, travel to a temporary workplace may qualify as business travel, whereas ordinary commuting between home and a permanent workplace normally does not.

Where employees use their own cars for qualifying business journeys, HMRC's approved mileage rates can be used. Appropriate mileage records should be retained showing the journeys undertaken.

Subsistence expenses can also cause confusion. The fact that an employee is away from home does not automatically make every meal a tax-free business expense. The expense generally needs to be associated with qualifying business travel.

Employers should have a clear expenses policy explaining what can be claimed, what evidence is required and who must authorise claims.

Receipts and supporting records should be retained where appropriate, and expense claims should ideally be submitted promptly rather than accumulated for months.

Company credit cards require similar controls. The fact that the employer pays the card bill directly does not determine whether the underlying expenditure is allowable or whether a taxable benefit arises.

Do not assume that describing a payment as an expense automatically makes it tax-free. Incorrect treatment can create PAYE and National Insurance liabilities for the employer.

If there is uncertainty about whether a particular expense can be reimbursed without deduction of tax, check the position before payment.