.jpg)
Expense reimbursement might sound straightforward, but it involves more than simply collecting receipts and paying employees. Making sure expenses are valid and getting employees to properly submit expenses for reimbursement can take up a lot of time. And that’s time that could be spent on growing your business.
In this simple guide, we'll help you navigate expense reimbursement.
We’ll explain what qualifies for reimbursement and how businesses can streamline their expense reimbursement process. We'll look at the challenges that come with expense management, and explore how expense management software can simplify the reimbursement process.
Get started with ExpenseOnDemand today to streamline your expense reimbursement process.
Expense reimbursement is when an employee pays for business expenses out of pocket and is then reimbursed for the expenditure by their employer. Expense reimbursement is more complex than simply paying employees in cash to cover out-of-pocket expenses. It typically follows a process like this:
Employee reimbursements must also be reported to the local tax authority, such as the HM Revenue and Customs (HMRC) in the UK or the Internal Revenue Service (IRS) in the US.
Here are some of the most common examples of expenses that an employer must reimburse employees for:
Business travel expenses incurred by employees can add up quickly, especially when work requires employees to travel often. Travel expenses can include:
For a travel expense to be eligible for reimbursement, travel must be strictly for business purposes. Employers must also pay employees for meals while they are travelling. This is also known as ‘subsistence’.
Accommodation costs are any costs employees pay for necessary accommodation during work-related activities, for example, paying for a hotel room during business trips.
For cost effective accommodation, every company should establish a policy on accommodation expense limits and preferred hotel chains.
After paying for a hotel out of pocket, employees must provide receipts and documentation proving that the accommodation was necessary for work.
Work-related meals that employees pay for are also eligible for reimbursement: This could include:
In addition to receipts, employees should provide an explanation as to why meals are business-related.
Business travel, accommodation, and meals are some of the most common work-related expenses, but many other expenses also qualify for reimbursement. Essentially, as long as employees can prove that expenses are related to work activities, then companies must reimburse employees for the expenses.
Some examples of miscellaneous expenses include:
Since there is such a broad range of miscellaneous expenses, businesses need a clear process where employees ask for approval before incurring miscellaneous expenses.
With all that said, there are some key challenges many organisations face with managing expense reimbursement:
Read on to learn how expense management software can help you overcome the challenges that come with expense reimbursement.
Many companies still rely on paper receipts and manual data entry for managing expenses. When employees incur expenses they keep their receipts and submit them to the accounting department.
Once approved, the company pays the employee for the expenses they incurred.
Businesses might use a spreadsheet to record all their expenses and store their paper receipts and documentation in physical storage.
While companies have relied on this method for years, the manual data entry involved is time-consuming and prone to error. This traditional method also requires constant communication between employees and the accounting department.
Expense management software has transformed expense reimbursement from a tedious task into a streamlined process that is easy for companies to manage. ExpenseOnDemand automates the entire expense reimbursement process – from recording receipt information to issuing payments to employees.
With ExpenseOnDemand’s receipt scanning app, employees can scan their paper receipts as soon as they pay for an out-of-pocket expense. All employees have to do is open the app and scan their paper receipts. ExpenseOnDemand will identify and record all essential information and digitise the paper receipts. The electronic receipt can be synced with your existing accounting system, making for easy access and storage.
Receipt scanning technology significantly reduces the time it takes to record receipt information, but it also eliminates the errors that come with manual data entry. Expense management software also automatically categorises expenses, preparing you for tax time or a potential audit.
With traditional expense management methods, waiting for expense approval can waste a lot of time. ExpenseOnDemand lets you set up an efficient expense approval workflow. You can designate certain employees to be expense “approvers”. When an employee submits an expense, it is sent to the approver. Once approved, the finance department makes the payment to the employee.
For effective expense management, organisations need clear guidelines on what type of expenses qualify for reimbursement and the process for claiming expenses. With clear guidelines, employees will know exactly what information to include when submitting expense receipts. This makes it easy for the accounting department to process reimbursements.
Unfortunately, many businesses have a culture focused on minimising costs above all else. While reducing expenses is important, a business should encourage employees to incur expenses when necessary.
To improve expense reimbursement, foster a work culture where employees are encouraged to ask for expense approval, report their expenses and discuss their needs. With a positive attitude towards expenses, employees will feel more comfortable submitting business expenses.
Reimbursing employees fairly also increases employee happiness and company loyalty. Maintain open communication with your employees and be willing to increase expenditures if necessary.
Tracking your expenses is a great way to gain insights into your company's financial performance and plan your budgets. With ExpenseOnDemand’s powerful analytics, you can generate detailed reports that give you valuable insights into spending. By tracking your expenses, you can see unusual spending and expenses that are not business-related. This can help you avoid fines from tax authorities.
In most countries, expenses that are reimbursed to employees are considered taxable income. In the UK, reimbursed expenses are taxable for most employees.
For employers, it's important to reimburse all employees for out-of-pocket expenses. This is because these expenses are considered tax-deductible and claiming them can give you a tax advantage. By failing to report all expenses, you may pay more tax than you need to.
ExpenseOnDemand can automatically categorise all of your expenses as soon as expenses are approved. This makes it easy to report your expenses and receive your tax deductions during tax time.
When filing expenses with the HMRC, you can report reimbursed expenses either through payroll or at the end of the year. Here you can find a detailed list of expenses you can submit to the HMRC.
If you choose to report expense reimbursements through payroll, you can report your expenses as you pay your employees' wages throughout the year. This way you don't have to report your expense reimbursements to the HMRC at the end of the year.
If your expenses aren’t payrolled, you must report them at the end of the year to the HMRC through a P11D form.
Keep in mind you may have to make National Insurance payments on expenses that were not solely for business purposes. Businesses must report to the HMRC how much National Insurance they owe.
Long story short; managing expense reimbursements can be complicated if you rely on traditional methods, such as collecting paper receipts, manual data entry and in-person expense approval. ExpenseOnDemand simplifies expense reimbursement through its receipt scanner app, automated data entry, expense categorisation, and efficient approval workflows.
Book a demo with ExpenseOnDemand today to simplify your reimbursement process – so you can focus more on growing your business.
A reimbursable expense is any business expense paid for by an employee on behalf of their employer. Since a reimbursable expense is related to the operation of a business, it is the responsibility of the employer to repay employees for these costs.
Reimbursable expenses include, but are not limited to:
More reimbursable expenses are available on the website of the HMRC.
Businesses must categorise reimbursed expenses based on the categories set out by the relevant tax authority. For example, in the UK the HMRC establishes expense categories.
Businesses can categorise reimbursed expenses by organising paper receipts or by entering expenses into a spreadsheet. However, these methods can be time-consuming and prone to error.
Expense management software like ExpenseOnDemand automatically categorises expenses as your employees submit their receipts. All categorised receipts are stored and accessed through the software, or through other programs that integrate with ExpenseOnDemand. Automated expense categorisation saves you time and prepares your expenses for tax time.
A refund is when a customer returns a product and requests their money back, because the product was damaged, defective or did not live up to the company’s promises. A customer can also ask for a refund for an unsatisfactory service or subscription. Refunds can come in the form of cash or vouchers.
Reimbursement is when an employee pays for something out of pocket on behalf of the company they work for. The company then pays the employee back for the expenses, because the expenses were business-related.
Yes. Typically expenses that are reimbursed to you by your employer are considered income. Therefore you must pay tax on reimbursed expenses.
Connect With Us
%201.png)
-transformed.png){kind=spacer}