Effective business spend management means keeping up-to-date with all the rules and regulations around tax and VAT. But how many times have you stopped to think about whether a rule you’re following is a genuine rule or one that’s based on a myth?
Here are three top business expense myths. In each case, we’ve busted them and given the truth. Read on to find out how many you knew – or if any were news to you. And, as always, remember that the definitive answer on tax and VAT issues always comes from HMRC, so if you’re in any doubt, it’s always best to check because every organisation’s circumstances are different.
Myth One: Staff Parties are Tax-Deductible
When it comes to staff parties and special events, there is some leeway to claim tax back, but the rules are very strict.
Your annual employee event will be exempt from tax, National Insurance contributions and reporting only if it meets the following three conditions:
- It’s open to all your employees
- It’s an annual event such as a Christmas party or summer barbecue
- It costs £150 or less per person
These rules also apply to online or virtual parties.
If your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of them.
You can hold multiple events throughout the year and as long as the combined cost of the events is no more than £150 per head, they’re still exempt. If any additional events go over this limit, you’ll have to report and pay on the full costs of these additional events, even if they cost less than £150 per head on their own.
For all the guidance visit gov.uk’s page gov.uk’s page on social functions and parties.
Myth Two: All Mileage Allowances Are Tax-Free
No. You can only pay an employee a certain amount each year without having to report it to HMRC. For anything that’s above the ‘approved amount’ you have to report on form P11D and add anything above the ‘approved amount’ to the employee’s pay, and deduct and pay tax as normal.
For cars, vans, motorcycles and bikes, the approved amount is 10,000 miles.
It doesn’t matter if your employee uses more than one vehicle in a year – the calculation is made per employee not per vehicle.
For all the guidance visit gov.uk’s page on business travel mileage for employees’ own vehicles.
The approved amount is something to keep an eye on as business travel returns, especially if employees are using their own vehicles rather than public transport to reduce health risks. The first step is to ensure you have accurate mileage data to work from, which is where automated mileage tracking apps are invaluable.
Myth Three: You Can Reclaim VAT on All Travel Expenses
Yes – and no. You can reclaim VAT on employee travel expenses for business trips, including meals and accommodation that you pay for.
However, there are a few caveats. You cannot reclaim VAT if you pay your employees a flat rate for expenses. You cannot reclaim VAT on entertainment costs. There are also special rules for motoring expenses.
For all the guidance, visit gov.uk’s page on reclaiming VAT on staff travel.
VAT is a notoriously complex area, but there are tools to help. Solutions such as Concur Tax Assurance by VATBox give you an automated data validation and VAT recovery process that help you manage tax compliance and maximise profitability.
The Value of a Business Spend Management System
How many of these did you know were myths? The rules are changing all the time so it’s very easy to lose track of regulations. Having confidence that everyone is following the most current guidance is one of the benefits of a business spend management solution such as SAP Concur. Whilst every business requirement is unique, the system is straightforward to amend and update when regulations change, so you can be sure that everyone is following the right rules.
For more information on how SAP Concur solutions help you with your controls and compliance, please read our eBook - Optimising Business Spend for Controls & Compliance: How Does Your Business Measure Up?