Does your Expenses Policy measure up?
This document is also available as a pdf for
Part 1: Guide to developing the perfect
expenses policy document
The task of producing a corporate
expenses policy is a thankless one.
While policy-preparation is far from
fun, the time invested will be repaid many times over as a
well-constructed corporate expenses policy is a key tool to
reducing travel and entertainment (T&E) costs and improving
This white paper allows you to assess whether
your expenses policy measures up and gives practical advice on how
to write a policy from scratch or to improve policies already in
A comprehensive Expenses Policy template
document is attached as an appendix.
1. Define why you need a policy: What are
you seeking to achieve?
Policies allow management to operate
Fair enough, but why do we need a formal
policy for T&E? You may argue that if expenses only get paid
with the correct signoff and approval, then there is no need for a
According to a recent Gallup poll at least 25%
of employees fiddle expense claims, costing an estimated £230
million per year to employers. So, if you are thinking that a
formal policy is not necessary, you are almost certainly wrong. The
two key reasons to have a policy are:
To reduce travel and entertainment
After salaries, T&E is the largest
controllable cost. Companies that implement formal policies can
reduce T&E spend by up to 20%.
To improve staff
A policy provides decision makers and staff
with limits, alternatives and general guidelines in order to arrive
at quick settlement of misunderstandings.
It may not be fun to write, but the time
invested in policy preparation will be repaid many times over. It’s
not only about reducing costs however; other benefits include
improved staff moral (fewer claims refused, fewer arguments),
better corporate governance, faster audits and an improved ability
to implement changes in expense guidelines.
2. Assess the scope of the policy: What
costs should it cover?
If you are seeking to control and lower costs
then you will need a policy that provides coverage of around 90% of
T&E costs and is as short and clear as possible to encourage
employees and managers to read it.
To determine the scope, you’ll need to know
who is spending, how much and on what. Start by looking at the
amount spent on expenses last year (and ideally the year before to
spot trends) by category and by department or function. This will
let you decide the categories to focus on.
For reference, in a recent survey of mid-sized
firms, the average distribution of T&E costs was as
1. Air Travel: 34%
2. Accommodation: 26%
3. Car, Taxis and Rail: 16%
4. Meals and Per Diems: 10%
5. Telecoms: 7%
6. Other: 7%
The policy should cover all areas of T&E
where material costs are being incurred. This will include the top
five or more categories, with the detail to be included varying
with the amounts being spent.
3. Establish ownership: Who should write
and review the policy document?
You’re convinced a T&E policy is
necessary, but the question remains; who is going to make it
A preparation and approval of a formal policy
document typically requires each of the following:
• A Sponsor - someone to
review, own, enforce and defend the policy.
• A Writer - someone with the
time and skills to review the current spending and work with
Finance, HR and the front office staff to draft a relevant
• An Approval Committee – a
group representing management to officially approve the policy.
This could be the board, the CEO or a senior management
It is common for such work to drag on, as it
can be perceived as ‘low priority’. For this reason, it is
important for the writer to prepare the policy according to a
defined timetable and to ensure that completion isn’t delayed.
4. Decide the structure and tone: Rigid
rules or broad guidelines?
A T&E policy should be made consistent
with the company culture and work environment, the employees
affected, other company policies and the goals of the T&E
policy. The key tradeoffs are:
Detail v. Brevity Further
detail will reduce ambiguity and variance in interpretation, but at
the expense of increasing the length of the policy.
Rigid Rules v. Principles
Where the judgement of staff is consistently good then you may
choose to use guidelines such as ‘reasonable meal costs will be
Intimidating v. Easygoing An
intimidating tone may encourage policy adherence and can be very
effective at reducing cost, but may be incompatible with the firm’s
5. Write, review and communicate the
The writing of the policy is iterative, with
the Writer drafting and the Sponsor reviewing. The review stage is
a good time to check the readability of the policy and improve it.
We suggest the following:
• Remember the target audience is the average
employee, not the Finance Director, so avoid jargon wherever
• Remove any details that may change
frequently, such as phone numbers.
Once the policy has been agreed and signed
off, the task is to choose how to communicate the new policy. There
are a number of options:
• Post it on the Internet or
Intranet. If putting the policy on the corporate intranet,
check it is easily accessible to staff offsite. If on the internet,
it may be appropriate to password protect access to it.
• Send it by email. Send as
an attachment to all staff to store in their email folders. Though
easy to do, version control will be poorer, the file will be
duplicated on many PCs and accessibility will be poorer.
• Print it. This can be
distributed either in internal mail or as part of an Employee
Handbook. This is the most costly method, the least flexible (as
updates require new print runs) and the least accessible (since
staff will not carry policies with them).
• Include it in the Terms and
Conditions of Employment or in the Employee
• Distribute the policy to senior management,
who in turn distribute it to their subordinates, and so on.
Nothing stops the policy from being
distributed in more than one form, so long as it is clear which
version is current.
6. Enforcing policy: Who are your
Audits of expenses routinely identify that
non-compliance with policy is not random. In our experience, staff
fall in a number of categories and policy enforcement needs to
recognise and address these different employee types:
• The Diligent (50%) are
attentive to detail and make an effort to check policy before
incurring expenses, claim regularly, double check all their claims
and payments and if in doubt, they don’t claim.
• The Balanced (35%) work on
the swings and roundabouts principle and aim to claim the right
amount ‘on balance’. They typically claim frequently enough to meet
guidelines but are casual enough to make genuine mistakes.
• The Disorganised (10%) are
lackadaisical or genuinely uninterested in precise figures and
submit claims irregularly, miss deadlines, provide incomplete
supporting evidence and will often submit a ‘jumbo’ claim after
forcing themselves to catch up. Although there may be no real
intent to be dishonest, their behaviour does require
• The Fraudulent (<5%) are
always trying to put one across and live in a world where
‘everybody does it’. Most are just bending the rules, or making
small errors consistently in their favour, but some are
deliberately trying to maximise their income by fiddling
The Diligent and Balanced employees will take
care of themselves so long as there is a formal policy in place and
readily available to guide them. Policy enforcement efforts
therefore need to target the Disorganised and the Fraudulent.
To improve the behaviour of these groups a
Monitoring and Signalling approach can be used.
• Monitoring: Managers should
let employees know that claims are monitored and that random spot
checks will be performed every month. Any errors found will lead to
a comprehensive review of all the previous months’ claims from that
employee until it can be confirmed that no other errors were
• Signalling: Managers and
Finance staff should ensure that staff know that when errors are
found, action will be taken. Remedial measures range from delaying
payments on claims, through non-payment of over-claimed amounts, to
formal reprimands and the requirement to have expenses approved in
7. Policy now under control? Time to
address the process!
Now that you have your policy under control,
you can focus your attention on the expenses process. In most
cases, that is where the greatest cost savings are to be captured,
as the paper-based expenses process is notoriously inefficient and
Web-based expenses solutions, such as that
offered by Sage, offer a cost-effective alternative to the paper
process, delivering significant cost saving benefits:
• An organisation can easily enforce
compliance with its expenses policy, resulting in lower
Travel and Entertainment spending. Moreover, because the
system provides transparency over the claims submitted,
self-policing is more rigorous than with a paper-based process.
• The processing cost savings
are significant, with the time taken to create, approve and process
expenses falling by over 50%.
• There are also substantial benefits in terms
of employee goodwill.
• Because a web-based solution entails
no software implementation, the implementation
process is quick and the cost low.
• Employees’ claims can be populated with
corporate credit card spending and out-of-pocket
ex¬pense items can be submitted using any internet
browser, the offline version or any mobile phone by
sending an SMS text message.
• Mileage verification
ensures employees claims are always accurate, receipts can
be attached electronically saving admin costs, you can
measure your carbon footprint and you can have
one expenses solution in multiple countries.
Part 2: Expenses Policy template
1. Overview and objectives
This document provides guidelines and
establishes procedures for employees incurring travel,
entertainment and related expenses while on company business.
The company will reimburse all approved and
reasonable expenditure incurred in undertaking company duties. The
guidelines enable controlled reimbursement to take place and
indicate the evidence and the authorisation required.
Amendments to the policy, procedures and
expense levels should only be made with reference to the senior
The objectives of the company are to:
• Provide regular reimbursements to
• Control costs
• Prevent fraud
• Ensure that the company complies with its
tax and legal obligations
The principle area of law relates to Income
Tax. Under the general tax law, expense payments rank as taxable
remuneration. A taxpayer may claim a deduction for expenses
incurred wholly, exclusively and necessarily in the performance of
duties of the employment. These rules are designed to satisfy
Inland Revenue requirements.
It is Managements’ responsibility to ensure
that costs are controlled and that expenses cannot be deemed to be
extravagant. To set firm limits for every eventuality will always
be difficult and will never suit every occasion or circumstance for
2. Supporting evidence
An expense claim must be supported by original
receipts, invoices or similar. Credit card items should be
accompanied by an itemised receipt giving full details of VAT
numbers and amounts.
In order for the Company to claim back VAT, we
must have proper original receipts to accompany allowable claims.
To meet the Inland Revenue requirement, each receipt or invoice
• VAT registration number
• Description of goods/services supplied
• The total charge, including VAT
• Name and address of supplier
• The date of supply
Individual departments will bear the cost of
all reimbursable expenses incurred by their own employees and any
VAT which cannot be recovered due to lack of correct sales
3. Overnight accommodation
Where possible, it will be expected that
employees use hotels where a group or corporate rate has been
negotiated. If this is not possible, then a common sense attitude
to expense will be expected when making bookings.
Evening meals should be chosen from the fixed
price (table d’hôte) menu or equivalent when available. The company
does not wish to dictate a set limit on evening meals, but claims
must be reasonable and managers will not authorise any claims
deemed to be extravagant.
4. Overnight incidental expenses
When staying away from home overnight on
business, it is recognised that employees will be likely to incur
some expenses over and above the basic costs of bed and meals. The
Company will reimburse costs for drinks, newspapers and/or
telephone calls, supported by receipt up to the current Revenue
limits, which are:
• UK £5.00 per night
• Overseas £10.00 per night
Costs for videos and any other entertainment
are considered taxable and therefore the company will not reimburse
Hotel bills would normally be expected to be
paid by the employee and claimed for reimbursement.
5. Breakfast/Lunch/Meal allowance
When a member of staff is away from the office
on Company business but not staying away from home, and meets the
following criteria, he can claim the reasonable excess over what he
would normally spend.
• The claim must be backed up by a
• The employee must be absent from the office
for more than half the working day.
• The meal and the business location must be
more than 5 miles from home and the office.
• For Breakfast the journey must have
commenced prior to 7.00am
Where an employee is on Company business but
not staying away from home, the cost of an evening meal may be
claimed against receipts if the following Inland Revenue limits are
• There must be more than 5 miles from office
• The meal must be eaten after 7.30 p.m.
• The employee must have been working away
from home for more than 10 hours.
These are the reasonable limits set by the
company for expense claims:
• Breakfast £6.00 with receipt
• Lunch £10.00 with receipt
• Evening meal working late away from the
office £10.00 with receipt
• Evening meal at hotel Fixed price menu with
6. Business and staff entertainment
Every claim for entertaining (Staff and
Business) must show the business purpose, where the event took
place, plus the name, status and company of every person
entertained. Receipts must be provided.
Where two or more Company employees are
engaged in entertaining which is chargeable to the company, then
the most senior person present should settle the bill.
The Company will reimburse all reasonable
Business Entertainment of customers/suppliers outside the
In most cases, the entire cost of an
entertainment expense should be charged to the category ‘Business
Entertainment’, including the costs of the staff member’s meal.
However, if the number of staff attending the meal exceed the
number of clients, then the costs of the ‘excess’ staff members
should be charged to ‘Staff Entertainment’. For example, at a meal
for four guests and five company employees, eight meals count as
Business Entertainment and one as Staff Entertainment.
Entertaining of staff, with the exception of
the Christmas party, is a taxable benefit. The company will meet
the tax liability arising from reasonable and duly authorised staff
Any lunches provided in-house for members of
staff are classified as staff entertaining and are taxable. Names
of attendees should be recorded. The company will meet the tax
liability arising from this benefit.
Business entertainment includes gifts and
hospitality of any type.
When customers/suppliers stay at hotels as
guests of the Company, their accommodation and meals will be paid
for by the Company.
7. Domestic air and rail travel
Second Class should be used for all journeys
other those journeys in excess of 3 hours for which First Class may
All bookings for air flights should be booked
through the company travel agency. An exception to this rule is
bookings made online with so-called ‘low cost’ airlines.
A minimum of three working days notice of
airline ticket requirements is desirable.
8. Overseas air and rail travel
All bookings for overseas travel, including
tickets for transportation, hotel reservations and any other
reservations should be made through the company travel agency.
Reservations will only be made against an approved Travel
For travel within Europe, each trip must be
authorised by the appropriate Director. Three working days’ notice
of airline ticket requirements is desirable.
For travel outside Europe, each trip must be
authorised by the appropriate Director. Five working days’ notice
of airline ticket requirement is desirable.
Employees will arrange with the company travel
agency to book the most cost effective means of travel.
Class of flight is determined as follows:
• Economy class will be use for flights of
less than 3 hours duration.
• Economy Plus or equivalent will be used for
flights between 3 and 5 hours.
• Lowest logical business class fare will be
used for flights of more than 5 hours.
• First class flights may only be taken if the
upgrade is free.
Class of rail travel is determined as
• Second class will be used for journeys of
less than 3 hours.
• First class will be used for journeys longer
than 3 hours.
• For overseas rail travel, employees may
travel first class and book sleeper accommodation.
Sea travel will not normally be used where
there is an alternative service by air. The use of short sea routes
may be justified if due to disruption of air services or for any
9. Foreign currency
If foreign currency is required it is often
more convenient for staff to obtain this from a currency exchange
or ATM abroad. The company will reimburse all costs associated with
this conversion on receipt of appropriate receipts or credit card
If foreign currency is required from the
company, a minimum of three working days is required for currency
to be ordered from the bank. Currency requests should not exceed
£100. Excess should be taken in the form of traveller’s
A foreign currency advance must be cleared
before an application is made for another cash or foreign currency
10. Other travel-related costs
Staff with Company cars or receiving a car
allowance will be expected to use their cars to and from the
airport, unless parking fees would exceed the cost of a private
Staff without company cars or a car allowance
will be expected to use public transport or private taxi cars to
and from the airport.
Claims may be made for reimbursement of the
cost (s) of applying for a visa for staff who are required to
travel overseas on Company business.
Note that the expenses process should not be
used to pay an individual for work done, such as casual work. All
such payments must be made via the payroll system and are liable
for Income Tax and NI considerations.
11. Company car policy
The Company will reimburse mileage at the
Company car drivers 25p per mile
Car allowance recipients 25p per mile
Use of Private Car 40p per mile for first
10,000 miles in tax year 25p per mile thereafter
Petrol for private journeys will be paid for
by the employee. The private mileage deduction for staff with
petrol cards is 25p per mile.
The Company will reimburse servicing in line
with the dealer recommendations and car parking expenses in
connection with business calls.
The company will not pay any fines in
connection with Road Traffic Act offences nor will the Company
reimburse car wash or valet costs. It is the responsibility of the
driver to ensure the car in his care is maintained to a reasonable
level of cleanliness.
Employees who receive a Company Car Allowance
are expected to have a vehicle available for use when required to
carry out their duties. This includes travel to and from venues
associated with the business. Applicable insurance for that vehicle
is the responsibility of the employee to arrange.
When two or more employees are traveling
together and one is the recipient of a company car or car
allowance, that employee is expected to drive and account for the
12. Training courses
Accommodation and transport in conjunction
with training courses is subject to the same rules as for other
13. Membership of Professional Bodies
The Company will pay subscriptions to approved
professional bodies on behalf of employees where an employee is
requested to take up membership by the Company, in the interests of
In some cases, subscriptions paid may be
taxable and the employee should be aware that he may bear the
14. Telephone-related costs
When a private telephone is used for business
calls, employees may claim the cost of business calls plus VAT
quarterly, on submission of the telephone bill.
Where significant business is conducted from a
private address a separate business line must be installed and the
bill addressed directly to the company. The company will in these
circumstances pay the rental and all calls plus VAT.
15. Purchases of equipment
Subject to the cost centre Managers approval,
various pieces of equipment, including IT equipment, may be
purchased for employees’ use at work or home.
All such purchases should be made through the
Company Administrator using a Capital Expenditure form and purchase
order and not by including on an expense claim form.
When an employee leaves or changes job,
equipment must be returned to the Human Resources department for
16. Cash advances
Where cash advances are required, an employee
must gain authorization from his or her Manager. Advances should be
used for Company business only and only one advance will be
permitted at a time.
Advances must be settled within a calendar
month using the standard expenses process.
A cash advance must be cleared before an
application is made for another cash or foreign currency advance.
The Company reserves the right to recover any outstanding advances
from any monies due to the recipient in the event of leaving.
17. Credit card fees
The annual fee for a personal credit card to
be used on Company business is not refundable by the company.
Online Expense Management
Sage has chosen to work with award-winning
provider of expense management software, WebExpenses. This solution
is easy to use, flexible to configure, easy to implement and rich
in functionality. It allows organisations to quickly reduce travel
and entertainment spending plus the costs of processing expense