Expenses Policy Example
A clear and comprehensive template for managing employee expenses in a UK business. Covers what can be claimed, approval processes, HMRC compliance, and best practices for preventing fraud and ensuring timely reimbursement.
What to Include
Scope and Eligibility
Who can claim expenses, what types of expenses are covered, and the general principle that expenses must be wholly and exclusively for business purposes.
Travel Expenses
Mileage rates aligned with HMRC approved amounts, public transport claims, accommodation for overnight stays, and the distinction between commuting and business travel.
Subsistence and Meals
Claiming for meals during business travel, benchmark rates, alcohol policies, and what receipts are required.
Equipment and Supplies
Claiming for work-related equipment, stationery, software, and any pre-approval requirements for purchases above a certain threshold.
Submission and Approval
How to submit claims, required documentation (receipts, invoices), deadlines for submission, and the approval workflow including manager sign-off.
Payment and Reimbursement
How and when expenses are reimbursed, whether through payroll or separate payment, and the timeframe employees can expect.
Fraud and Misuse
Consequences of submitting false or inflated claims, audit procedures, and how suspected fraud will be investigated.
Key Points
- Expenses must be wholly and exclusively for business purposes
- HMRC approved mileage rates are 45p per mile for the first 10,000 miles and 25p thereafter
- Receipts should be retained and submitted with all claims
- The policy should clearly state what is and is not claimable
- Regular auditing of expense claims helps prevent fraud
- Employers should process claims promptly, ideally within the next payroll cycle
UK Compliance
Expense policies must align with HMRC rules on tax-free reimbursements. Using HMRC approved mileage rates avoids the need to report to HMRC. If employers pay above the approved rates, the excess is treated as earnings and subject to tax and National Insurance. The Income Tax (Earnings and Pensions) Act 2003 governs the tax treatment of employee expenses.
Practical Tips
- Use expense management software to streamline submissions and approvals
- Set clear spending limits for different expense categories
- Communicate the policy during onboarding so employees know what to expect
- Review and update rates annually in line with HMRC changes
- Consider providing company credit cards for frequent travellers
Frequently Asked Questions
What are the HMRC approved mileage rates?
HMRC approved mileage allowance payment rates are 45p per mile for the first 10,000 business miles per tax year and 25p per mile thereafter for cars. Motorcycle rate is 24p per mile and bicycle rate is 20p per mile. These rates are tax-free when used correctly.
What counts as business travel?
Business travel is a journey made for work purposes that is not the ordinary commute to a permanent workplace. Travel between offices, to client meetings, conferences, and training events typically qualifies. HMRC has specific rules about temporary workplaces and when travel becomes commuting.
How long should expense receipts be kept?
HMRC requires employers to keep records for at least 3 years after the end of the tax year they relate to. Best practice is to retain expense records for 6 years. Digital copies of receipts are acceptable provided they are legible and accessible.
Can employees be disciplined for expense fraud?
Yes. Submitting false expense claims is a serious breach of trust and may constitute gross misconduct. Depending on the circumstances, it could lead to disciplinary action up to and including dismissal. In extreme cases, it could also be a criminal matter.
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