Get your ducks in a row by 6th April: what do you need to do?

With just weeks to go before the 2022 / 23 tax year starts, it’s important to get your ‘ducks in a row’ when it comes to employee expenses.

Thankfully, the process isn’t as complicated as it used to be. Up until 2016, it was a manual procedure that involved filling in a P11D form at the end of the tax year. Not only was this time-consuming but, being a paper-based practice, was at risk of errors.

Fortunately, HMRC has digitised the benefits and expenses process in what’s called Payrolling Benefits in Kind (PBIK).

The deadline is fast approaching

Companies wanting to utilise the PBIK option have until 5th April 2022 to make their submissions. If the deadline is missed, they can still opt to do it, but there has to be a valid reason for missing the cut off date. 

If HMRC decides to allow it, a P11D form still has to be filled in but marked “payrolled” so the Tax Office knows not to collect the VAT again. Clearly, if possible, it’s better to file the documents before the deadline to avoid the extra admin. Once PBIK has been applied for, registration is ongoing, so submissions don’t have to be made every tax year.

How does this relate to expenses?

To make life easier, employees can use a digital expense management platform. Photos of receipts for items or services purchased on behalf of the company can be uploaded via an app on their smart phone. It doesn’t matter whether the employee has paid with their own credit or debit card, or a prepaid company Mastercard, the system will log and process it. Details of the expenditure are reconciled with the business’s overall accounting system and submitted to HMRC, taking the pain out of the process.

What expenses can an employee claim for?

There’s a long list of things that employees can claim, but some items fall in to a ‘grey area’ with HMRC, so it’s best to check. Broadly, however, the following list covers the more common items employees claim:

• Business travel – petrol, taxi fares, plane or train tickets. This doesn’t include the usual daily commute, unless it’s outside an employee’s normal working location

• Accommodation if the employee is working away from their normal place of residence

• Refreshments during courses / workshops

• Food if the employee is working away

• Professional memberships if necessary for their job

• Professional development courses if relevant and necessary to carry out their duties

• Equipment or study material necessary to carry out their role

• Entertaining clients or prospective customers. The company should have a policy which clearly outlines what can be claimed for under this expense

The criteria that must be met for HMRC to make it a legitimate claim are:

• The expense was necessary for the employee to carry out their job

• The expense would have been incurred regardless of who was doing the job

• The expense was incurred and paid for

• The expense was incurred as a consequence of the employee carrying out their duties

• The expense was wholly and exclusively for work

The advantage of digital expense management platforms means employees can enter their expenditure anytime, anywhere. This makes the process of submitting claims convenient and more efficient than the traditional paper-based method. 

For the business, it avoids the labour-intensive practice of reconciling expenses with the main accounts system. The result is the organisation has far less work to do at the end of the tax year because the expense management system has made sure all entries are accounted for and are HMRC compliant.