Expense reports management is a process that affects most, if not all, companies, regardless of their size.
Whether you are in charge of establishing a management strategy to handle expense reports for your company, an employee who does not know what an expense report is or how to be reimbursed, or looking for an expense report management tool that will make your life easier, this handbook is for you.
This guidebook explains everything you need to know about expense reports and how to optimize your processes.
What is an expense report?
An expense report is a document filled out by an employee or a partner so they can be reimbursed for professional expenses.
Expense reports are generally presented as forms, whether in a paper or a digital format.
In their most basic format, expense reports can be itemized in a simple Excel file, presented according to the following columns:
- Date or period during which expenses have been incurred
- Expense details: reason for the expenses, names of people involved (employee and his or her guests), mission type, employee’s position, name of the hotel or restaurant, etc.
- Purpose of the expense: Travel/Meal/Accommodations/Other expenses
- Total amount
With the advent of new technologies, several solutions now exist to automate the expense management process. The purpose of these solutions is to free time up for everyone involved in the process, help the company make money, and above all, to streamline expense reports management and minimize human involvement for a task that has a low added value.
How are expense reports managed?
Every company, regardless of its size or activity, must implement a spending policy that will serve as a guide for employees on a mission.
They must establish a system devoted to creating, filing, controlling, validating, and reimbursing expense reports in accordance with the company’s deadlines and conditions, and naturally, with current legislation.
Expense report management processes are different for every company, depending on the number of employees, how often they go on business trips, the company’s reimbursement mode, its hierarchy, and many other factors.
Expense reports management is quite simple for small companies, since typically, only a small number of their employees will generate expenses. However, as the number of employees increases, expense reports management can become a fastidious, time-consuming, and costly administrative process. Without forgetting human error and fraud attempts, which can be costly for a company.
It is therefore important to choose an expense report management tool that is adapted to your needs and is configured according to the specificities of your company.
Modern companies use expense report apps to streamline their processes and better manage the flow of ever-evolving expense reports.
What conditions exist for the reimbursement of expense reports issued by HMRC?
When an expense is reimbursed, HM Revenue and Customs (HMRC) must be satisfied that the expense is admissible for tax purposes, otherwise, the reimbursement from the employer is handled as an additional taxable income.
What can be reimbursed?
Travel and accommodation expenses are reimbursed by the employer. Travel and entertainment expenses are the second largest controllable expense and account for 8-12% of operating expenses.
Mileage Allowance Payments (MAPs) is what the employee is paid for using their personal vehicle for business-related journeys. Employers can pay their employees a certain amount of MAPs every year without having to report them to HMRC, this is known as an ‘approved amount’.
The ‘approved amount’ is calculated by multiplying the employee’s business travel miles for the year by the rate per mile for their vehicle. You can use HMRC’s MAPs working sheet to learn more.
What are the deadlines to reimburse employees?
The timing to reimburse employee expense reports is a debatable subject. On the one hand, employees are spending their own money for work purposes and basically giving employers hundreds of millions of dollars in interest-free loans, every day. This should mean that employers must work to pay their employees back ASAP. However, on the other hand, we know that expense reports sometimes rhyme with fraud so logically, employers need a bit of time to make sure of who they are paying back.
There is no specific law on deadlines around expense report reimbursement, but there is strong consensus among Travel and Expense (T&E) professionals that employees should not wait more than 30 days after submission to be reimbursed.
This can be settled with a specific and well-defined reimbursement policy. For instance, clearly share that expense reports must be submitted at least a week or two before the next payroll date, so that the amount is included in the next check.
How to account for an expense report?
It is mandatory to keep a record of all expenses provided to the employees. These records must show accurate reporting and correct end-of-year forms in case HMRC asks for evidence of how you accounted for each expense at the end of the tax year.
What you should keep
You must keep a record of:
- the date and details of every expense or benefit you provide
- any information necessary to work out the amounts you put on your end-of-year forms
- any payment your employee contributes to an expense or benefit
You must also keep any record of a correspondence you have with HMRC.
Records must be kept for 3 years from the end of the tax year they relate to.
Example: You reimburse an employee’s hotel stay – You will need to keep a record of the date and reason behind this travel, and where possible, keep receipts as evidence.
In which journal entry are reimbursed expenses accounted for?
To process the reimbursed employee expenses, two bookkeeping journal entries need to be posted.
- The expense is posted, and a liability established to the employee.
- The employee is reimbursed, and the liability is cleared.
Reimbursed employee expenses – The expense is recorded
When the employee is reimbursed later, the following journal is recorded.
Reimbursed employee expenses – The employee is reimbursed
Expense Reports App
An app that manages expense reports, such as Expensya, enables employees to optimize their processes. Here is a typical use of the Expensya expense report app:
- An employee on a mission uses an expense reports app (Android or iOS device) to scan a proof of payment (receipt, invoice, sales receipt, etc.).
- OCR+ technology automatically detects all the important information and generates an expense report.
- The employee checks that everything is in order and submits the expense report to her manager.
- The manager consults the expense report using the software to see his employees’ expense reports. He then checks that the employee has met the expense conditions, approves expenses, and sends the expense reports to the accountant.
- The accountant receives the expense reports. Thanks to automatic notifications, he is warned when expenditure limits have been exceeded, or when the expense policy has not been respected for other reasons. The accountant approves expense reports that comply with the company’s expense policy before they are reimbursed and archived and rejects those that are not in compliance or contain errors. These are sent back to the employee for corrections.
The expense report management process is optimized to maximize the performance of each employee across various processes and to reduce human errors.
A solution like Expensya is highly adaptable to meet the specific needs of each employee and to apply to company expense policy rules.
Modern expense report management softwares are therefore the best way to organize and manage professional expenses and to ensure that reimbursements occur smoothly. They have been designed to save companies time and money.