Guide to HMRC expenses compliance: FAQs

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Webexpenses has a proud track record of helping businesses to take effective control of employee expenses. From our experience, the one area finance teams tend to fear most is HMRC compliance.

We’ve compiled some of the most common queries about tax compliance to help you safely navigate the complexities of HMRC legislation. Here’s a look at some of the most frequently asked questions:

Which expenses are covered by the HMRC exemption?

Exemptions were introduced in 2016 to replace the old dispensations system. It means that valid expenses paid or reimbursed by the employer do not have to be reported. This covers:

  • Business travel and subsistence
  • Business entertainment
  • Professional fees and subscriptions
  • Expenses are not covered by the exemption if they are:
  • Scale rates not approved by HMRC
  • Paid via a salary sacrifice arrangement

When is a P11D required?

A P11D is needed for each employee you’ve provided with expenses or benefits that are not covered by the exemption. You don’t need to submit a P11D for employees if you pay tax on all their benefits via payroll.

Can credit card slips be used as proof of an expense?

No, they’re not usually deemed to be sufficient; a receipt is required to prove that a cost was incurred. This must be legible and include the date, cost, name of the supplier and VAT number. A digital copy of a receipt is equally valid as a paper original as long as it provides the same information.

When do travel expenses qualify for tax relief?

To qualify for tax relief expenses need to involve necessary travel, subsistence, and accommodation between a:

  • A permanent and temporary workplace
  • Home and a temporary workplace
  • Two or more temporary workplaces

The travel details need to be recorded in a way which enables allowable and non-allowable components to be identified.

  • Qualifying expenses include:
  • Airfares, taxes, trains, etc., for business travel
  • Hotels and subsistence while away from normal workplace
  • Business mileage, car parking, tolls, etc.

What rate should I set for mileage?

To ensure compliance, it’s best to keep to the advisory rates that are provided by HMRC. There are two rates that depend on who owns the vehicle being used:

  • If an employee owns a vehicle then AMAP (Approved Mileage Allowance Payments) rates apply. Follow the link for more on AMAP.
  • If it’s a company-owned vehicle, it’s covered by AFR (Advisory Fuel Rates). Follow the link for more on AFR.

What kind of accommodation expenses will HMRC query?

The basic test for any travel or subsistence cost is whether it’s ‘necessarily incurred’. An example of a cost that HMRC are liable to challenge is when accommodation claimed is close to the location of an employee’s permanent place of work.

Do trivial overnight expenses need to be reported?

No, if the costs are no more than £5 per night (£10 for travel outside the UK) then no reporting is required and there’s no tax liability. Typical examples of costs that would qualify for this include:

  • Laundry
  • Phoning home
  • Purchasing newspapers

If the costs are above the set limits then an expense claim must provide a breakdown of hotel bills.