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A practical guide to HMRC expenses compliance

How to make your business tax compliant and VAT efficient

With the threat of fines, back payment of arrears, and potential prosecution, HM Revenue and Customs (HMRC) compliance is one area of expense management you simply can’t afford to get wrong.

But while the pressures have increased to meet every external rule and regulation, so has the power of digital expense management systems to effectively handle them.

In this white paper, we will discuss how a digital system can help to relieve those regulatory pressures, including:

  • A smarter way to handle tax
  • Ensure HMRC compliance
  • Identify VAT savings

See our other guides on maximising efficiency and minimising risks for more advice on HMRC expenses compliance, as well as HMRC compliance FAQs.

A smarter way to handle tax

There are obvious benefits provided by switching from a paper-based to a digital expenses management system. It’s the difference between having to manually post a letter and zinging off an email - it’s faster, simpler and less expensive.

But there are other major advantages which, while being less obvious, are no less important. Amongst these is the power of a digital system to boost tax compliance and unlock VAT savings.

Compliance is something that businesses can’t afford to ignore with HMRC continuing to devote more resources towards ensuring businesses are tax compliant.

Ensure HMRC compliance

When HMRC carry out a company audit of expenses, they aren’t just going to burrow down into your company’s documentation to check you have the proper records. They will conduct their compliance check looking at the bigger picture - they want to see evidence that you have an effective end-to-end process in place to manage your employee expenses. This includes:

  • An enforceable expenses policy
  • An effective approvals process
  • A robust system of checks and balances

Identifying VAT savings

Any VAT that’s charged on normal types of expenses incurred by a business can be recovered. This includes:

  • Land or property-related services
  • Conference or event organising activities
  • T&E
  • Restaurant meals and subsistence

But confusion over how the system works means that huge amounts of VAT are left unrecovered each year.

Opportunities for foreign reclaim

Companies who rely on international travel pay this tax on all of their accommodation, meals, transport, and incidentals. What they’re often not aware of, is that this VAT may be recoverable.

Complexity arises when trying to determine how each country treats the VAT with every jurisdiction having different rules. These can depend on the company type, who incurred the expense and why, and where your company is registered.

VAT by category

The ‘other’ category includes spending categories such as laundry, training, gifts, subscriptions, domestic air, equipment, visas, office supplies, and books.

  • Lodging 57%
  • Meals 14.8%
  • Taxi 11.6%

Note: This profile is indicative based on the collective data of clients from our partner Meridian Global Services.

VAT recovery: Top tips for business travelers

Tax compliance experts, Meridian, give their expert tips on recovering foreign VAT.

  1. Original invoices are key – this means that when you get your receipt or  invoice, it should not say ‘duplicate’ or 'copy’. It should also show the date, the supplier's name, and the VAT number.
  2. Book accommodation directly with the hotel - this avoids the issue of a non-VAT-compliant invoice from an aggregator.
  3. Use your business address when checking into a hotel. Give your business card for the address details and explain that you need this address put on the invoice.
  4. When you are having a meal with colleagues or clients, write their initials on the back of the receipt before you leave the restaurant or shortly after. This way you won’t forget who attended which meal, particularly if you are traveling several times before submitting your expenses.
  5. If you’re not sure whether a receipt is eligible or not for VAT, keep it! It can always be discarded later on!

Taking control of tax

With effective use of digital expenses management and some expert advice, you can make sure your company is tax-compliant and VAT efficient. With a robust policy and meticulous record-keeping, there’s no need to live in fear of the dreaded tax compliance check.

But that doesn’t mean you should become complacent. Any employee expense management system is only as good as the people who maintain it and all employees need to be fully aware of their shared responsibility to ensure compliance.

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