Every business should encourage employees and directors to pay for expenses on a personal credit card, and claim them back once a month; even if you're a one-person company and you're the only director. We've known disciplined, well-organised directors get into an awful mess because they mixed personal and business money.
The golden rules are:
- Copies of receipts: No receipt; no expenses claim. Get into the habit of hoarding business receipts, proof-of-purchase, email booking confirmations and anything else that will prove that you have a valid business expenses claim.
- Pay for items with a single personal credit card to avoid your personal finances becoming part of a tax inspection.
- Avoid getting invoices and receipts showing a mix of business and personal-use items. The Revenue will only allow expenses that are [jargon alert] “incurred wholly, exclusively and necessarily” in doing the job.
- Have receipts and invoices addressed to your business - especially receipts for assets and expensive items.
- If you're thinking of claiming anything exotic, it's best to talk to us first.
- You can't reclaim VAT unless you have a full VAT receipt. A receipt has to show the magic VAT numbers; (the VAT amount and the suppliers VAT number) or it doesn't count. Don't be so eager to get home and play with your new gizmo essential business purchase that you forget to check the till receipt shows the magic VAT numbers. If it doesn't, ask for a VAT receipt. Even if there's a large queue behind you and you have to suffer some tutting.
Businesses that take on employees should think about having a written expenses policy - our expenses guides may be useful as a starting point for designing one. The policy should detail which expenses employees and directors are allowed to claim. Expenses policies should push the “wholly, exclusively and necessarily” rule. Your business can allow some discretion over the amounts employees can claim, for example it might say how much can be spent on accommodation and an evening meal. Amounts should be realistic and should apply to everyone; otherwise, HMRC may insist that there is a reward included and your employee will be taxed as a receiving a benefit.
Although these expenses guides are written for limited companies, they should still be useful for sole traders, but rules for self-employed people can sometimes be slightly different.
The main difference is that any expenses which are not exclusively for your business will be split between business and private use.