Managing routine expenses for employees:
To simplify expense management and avoid reporting to HMRC, employers can implement a petty cash-style float for routine expenses. This involves providing the employee with the necessary funds upfront before they make any purchases. Typically, the float is kept in a central location, and a dedicated notebook is provided for the employee to record expenses and attach receipts. This approach covers various expenses agreed upon for reimbursement. As long as the float system is in place, the employee doesn't need to submit expense claims, and there are no tax reporting liabilities.
Alternatively, instead of using physical cash, employers can opt for a safer option like a prepaid debit card linked to a bank account. Prepaid debit cards are widely accepted and prevent the employee from incurring any debt. By diligently recording all expenditures in the notebook, there is no tax liability or reporting requirement to HMRC.
Mileage payments for employees using their own car:
When an employee uses their own car, mileage payments can also be covered using the same notebook system. The standard rate for mileage payments, without incurring tax or National Insurance, is 45p per mile. These payments are called Mileage Allowance Payments (MAPs). Up to 10,000 miles per year can be reimbursed at this rate. If the mileage exceeds this threshold, the rate must drop to 25p per mile.
The 45p per mile rate is designed to cover not only fuel costs but also contribute to other expenses like insurance, road tax, and car depreciation. It is advisable to take full advantage of this rate to maximize tax benefits. However, only business-related mileage can be reimbursed tax-free; commuting from home to work does not qualify.
To ensure proper record-keeping, the employee must maintain a detailed log of each journey. Paying a fixed amount each week or month is not recommended, as it will be considered a 'round sum' allowance and will be fully taxable. Employers can utilize the petty cash float and notebook system, similar to the routine expenses, to easily track mileage journeys. Regularly reviewing the notebook will help manage expenses effectively without excessive administrative burden. In cases of exceptionally high mileage, it may be appropriate to negotiate a lower rate per mile to control costs.
