Best Practices To Create And Optimise Your Company’s Expenses Policy

The Blue dot Team

A well-designed, thought-out and implemented expense policy can have an incredibly positive impact on your company. It helps you to better manage your bottom line, gain control over your spend as a company, save you time… and definitely save you money.

Consider this: Employee-driven transactions in today’s corporate world account for trillions in spending and this can result in high overheads and a tax audit risk.

What is an Expense Policy?

Your expenses policy is made up of clearly defined rules that ensure every individual, team and silo within your business knows what counts as an expense, what’s considered an allowable expense, how to be reimbursed for expenses, and how the entire expenses process works from start to finish.

This policy essentially ensures that your accounts, paperwork and costs are documented so your business is compliant with tax regulations. It also ensures your expenses are aligned with your financial strategy.

Importance of Having an Expense Policy​ in Your Business

You need a concise and clearly defined expenses policy in your business for several reasons.

  • It ensures every individual spends money in line with business policy and financial management expectations.
  • It provides a framework for submitting paperwork, slips and receipts, which keeps your company compliant with the tax authority.
  • It allows finance to gain more visibility into spending habits and costs, allowing for improved decision-making and budgeting.
  • Smart cost-cutting and refinement, thanks to visibility into employee expenses and spending, can significantly impact the bottom line.

Clear Purpose and Objectives

Your expenses policy must be easy to access, understand and apply. It needs a clear purpose that employees understand – why they need to do this – and concise objectives – the benefit to the company and the employee. If everyone is on the same page, then expense management becomes markedly easier, reducing admin and time spent chasing people for paperwork or enforcing compliance.  

Defined Scope and Applicability

Your policy needs to be broken down into clearly defined sections so every individual, team, and department knows what rules apply to them regarding expenses. For example, the expenses for an entire department are very different from those of a single employee claiming for travel or food.

You need to define who the policy applies to and how different circumstances affect them.  

Specific Expense Categories and Limits

Your employees must know exactly what expenses are allowed, the different expenses categories, and the limits for each category. For example, suppose you allow employees to claim back on their travel expenses when travelling for business – commonly covered under your Travel and Entertainment (T&E) policy. In that case, you need to specify how much you are prepared to reimburse them for every line item across food, petrol, flights and accommodation.

When everyone knows the limits, they are less likely to overspend and know that any costs exceeding these limits will remain their own, unless in extenuating circumstances. All this information must be included so employees find it easy to be compliant.

Approval and Reimbursement Process

Will your company want employees or departments to get pre-approval before incurring an expense? Are certain expenses allowed up to a certain amount every month? These are some of the questions you need to answer and understand before creating your expenses policy. It’s a good idea to make rules for those costs that require pre-approval versus those that don’t.

You also want your employees to submit their expenses and evidence, such as invoices and receipts, to make it easy to understand the processes they must follow to get reimbursed. Explain exactly what evidence or documentation they must submit to ensure they (and your business) are compliant with regulations. Remember, if you make this process accessible, people are more likely to be compliant. You also don’t want resentful employees waiting weeks to be reimbursed for a company expense, so make reimbursements easy and quick.

If your processes are clearly defined, you will also minimise fraud and corruption as you’ll have improved visibility into your employee expenditure and behaviour.

Receipt and Documentation Requirements

When it comes to expenses, receipts and proof of purchase documents, invoices and ticket stubs, and online statements are all absolutely essential. If anyone in the company spends money on behalf of the company, they must provide you with all of the required evidence that goes along with that expense. If they’re buying flights online, you want those invoices and receipts. If they’re buying petrol on the road, you want those receipts. Everything an employee or department claims must be backed up by documentation.

You can make this easier by creating a digital submission portal or using technology solution to simplify the submission of receipts and documents digitally. This will make it easier for people to remain compliant, submit their receipts and ensure the company is prepared when it comes to proving expenses with the tax authority.

Types of Business Expenses

Business expenses come in all shapes, sizes and types. While this list below is by no means exhaustive, it gives you a solid foundation from which to create a living expenses policy document.

And what do we mean by ‘living document’? Well, creating an expenses policy is only the start; you will need to update it regularly to keep up with changing business needs, costs and, of course, regulatory requirements.

Travel and Entertainment (T&E) Expenses

These expenses are those incurred while doing activities for the business and can include:

  • Trains, cars, boats, busses, planes, taxis, or Uber (or other similar ride services)
  • Car hire
  • Mileage claims when using a car for work
  • Business hospitality claims for client networking, entertaining and events
  • Food and drink
  • Accommodation costs
  • Credit card or account fees accrued in lieu of paying for these expenses
  • Visas, baggage fees, foreign exchange fees
  • Phone call or communication costs, such as Wi-Fi 

Meal and Entertainment Expenses

These expenses include:

  • Any food and drink purchased while undertaking business activities
  • Specific entertainment expenses incurred while doing business or engaging with customers

For this part of the business, set limits or thresholds on what employees can realistically spend on these activities within certain settings. For example, taking a client out to dinner to celebrate a new contract should come with an upper expense limit on food and drinks.

Home Office Expenses

If your employees work from home, then you need to consider expense reimbursements across a variety of elements. However, you must find a balance between what is realistically used for the business and what a person will be using for their benefit. For example, Wi-Fi may predominantly be used by the employee for work during the day but may also be used for streaming or personal entertainment in the evening.

Some of the key things to consider here are:

  • Wi-Fi and connectivity costs
  • Mobile phone and communication costs
  • Some drinks such as tea, coffee, water, milk
  • HMRC also adds that these expenses could include ‘equipment, services or supplies such as computers or office furniture, gas and electricity.

Education Expenses

Some roles require regular training and development for them to continue practising. Known as Continuous Professional Development (CPD), this level of training is mandatory within certain sectors and should be covered by the company. Other forms of training or education may be invaluable to employees, so you may want to create an expenses budget for ongoing training and skills development.

This can include:

  • Access to platforms such as LinkedIn training for all employees
  • CPD programmes
  • Training and development programmes
  • Membership fees to professional organisations 

5 Best Practices To Create Your Business Expenses Policy

These simple steps will help you take all this information and wrap it together into an expenses policy that really supports your company and employees.

Defining Clear Guidelines for Expense Reimbursement

Ensure that every employee, department, manager and team understands exactly how much money they are allowed to spend on any of your outlined expense categories and how to submit their paperwork to be reimbursed when they spend this money.

People need to know how to:

  • Find the expense limits
  • Submit their paperwork for pre-approval (when required)
  • Submit their receipts and documentation
  • Ensure their reimbursement application is approved and how long it takes to be repaid

Setting Clear and Realistic Expense Limits

Establish precisely what your company can afford to set as an expense limit per item and category. These costs will differ depending on the context. A team spending money on a teambuilding weekend will have a very different budget compared to an employee travelling to an event.

These limits need to be clear, visible and understood by everyone.

Incorporating Flexibility and Fairness

Life has a way of doing precisely the opposite of what the rules say, so don’t create a policy so iron-clad that it can’t move when situations require flexibility and fairness. A case in point could be an employee forced to spend an extra night at an airport because their flight was delayed or cancelled. They will be spending more than the approved limit, but they don’t have a choice in the matter.

It is far better to have an agile and adaptable expenses policy capable of shifting in response to situations and requirements than to be held in a tight corset of rules that don’t allow for much leeway.

Implementing Efficient Expense Reporting Systems and Tools

Technology is your best friend when it comes to expense management, policy development and reporting. If you implement an accessible and easy-to-use expenses platform, then your employees can quickly see what expenses are allowed and remain within the limits. It will also ensure you can store paper invoices and receipts digitally, which is far more efficient and will make your life easier regarding tax submissions and expense management.

You can use this platform to:

  • Simplify the submission of paperwork
  • Manage accounting and financial processes with accessible data
  • Provide clear reporting and analytics to finance teams for improved expense and budget management
  • Reduce the risk of fraud, corruption or employee error

Ensuring Compliance with Legal and Tax Regulations

HMRC has unambiguous rules when it comes to expenses and taxes. You have to comply with the tax authority or run the risk of fines or an investigation. HMRC provides extensive guidelines to ensure you remain compliant. Blue dot helps you make every line of employee expense data accessible to HMRC, your finance teams and your business.

Blue dot’s all-in-one expense analysis platform uses advanced artificial intelligence (AI), deep learning and natural language processing to create a complete, contextual, and transparent story of all employee-driven transactions. These expenses today are purchased using corporate and P-cards as well as online, and introduce an ongoing stream of unstructured data that has to be managed tightly to ensure the business is easily compliant. Blue dot’s AI models ensure data quality by validating vendor receipts and matching them against expense reports submitted by your employees. It then runs these transactions within its built-in tax compliance engine with VAT reclaim eligibility rules and tax regulations per country to ensure compliance.

Educating Employees on the Expenses Policy and Procedures

Finally, and most importantly, every employee in your business needs to know about your expenses policy. They must know how to use it, access it and remain compliant. Ensure that this forms part of your employee onboarding training, that employees are constantly reminded of the policy, and that regular updates are shared with the company.

How Blue dot Can Help with Expense Management

Blue dot ensures compliance across your employee-driven expenses. Our solutions leverage 200 advanced AI and machine learning models to enable complete, centralised and entirely digital expense analysis and reporting processes for cross-border enterprises. Our solution provides the highest levels of precision and reliability over 100% of your employee-generated transactions, while enabling your business to replace time-consuming and expensive manual processes with a digitised platform that’s accessible and easy to use. 


Learn more about digitalized compliance automation for modern employee spend

We appreciate your interest in VATBox!

* Mandatory Fields

Download your file now
Please fill in the form below
Register Now
Download your file now
Download your file now
Partner with us
Share your resume