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How to make a Expense policy

Make an expense policy to communicate your organisation’s approach to staff expenses, so that staff can make expense claims in a clear and compliant way.

An expense policy is a document that sets out an employer’s approach to staff expenses. It explains what types of costs staff members can claim reimbursement or payment for and how they should do so.

Use this expense policy: 

  • if you cover the costs of anything your staff members may purchase that’s associated with their work

  • for staff members located in England, Wales, and Scotland

This expense policy template covers:

  • who is responsible for making decisions about expenses, processing and approving expenses claims, and answering questions about expenses

  • the employer’s approach to expenses, including optional sections on:  

  • which categories of expenses the employer will cover, including: 

    • details about each category of expenses covered

    • limits for particular expenses, and

    • if you cover entertaining expenses, information about compliance with anti-bribery laws

  • how staff should submit expenses claims

  • what happens if a staff member abuses the provisions of your expense policy

There’s no legal requirement for employers to have an expense policy in place. However, managing staff expenses can be difficult as there are various tax and reporting requirements that you must keep on top of. Having an expense policy in place can help you to manage these requirements whilst communicating clearly with your staff about what expenses they can claim.

Staff (or employee) expenses are sometimes referred to as staff (or employee) benefits. Both are essentially the same thing for the purposes of reporting and paying tax on these payments. This expense policy treats expenses and benefits as the same thing and simply refers to ‘expenses’.

As an employer, it’s almost entirely up to you what kinds of staff expenses you’ll pay for. Some (but by no means all) of the categories of expenses you may choose to include in your expenses policy are: 

  • travel costs (eg travel tickets, congestion charge costs, and parking costs)

  • meal costs

  • accommodation costs and other costs associated with being away from home for work 

  • the costs of training courses

  • equipment costs (eg IT equipment and devices required for working from home)

  • subscription and membership fees (eg for subscriptions to online databases)

  • clothing or personal protective equipment (PPE) costs

  • counselling costs

  • medical or dental costs

  • entertaining costs (ie the cost of entertainment, such as dinners, for current or potential clients, partners, or collaborators)

Entertaining expenses are costs incurred for the purpose of maintaining or developing a business relationship with potential or existing clients, partners, or collaborators. 

You must be aware of anti-bribery laws if you cover entertaining expenses, as there is a risk that any entertainment your business offers (eg nice dinners or outings) could be considered bribery (ie illegally incentivising people to do business with you). The general principle to abide by when deciding which entertaining expenses are honest and legal is that expenses should be reasonable, proportionate to purpose, and made in good faith. They should be connected to a legitimate business activity (eg discussing a collaboration agreement) and should be no more lavish than needed.  If you indicate that you cover entertaining expenses this expenses policy will include a clause explaining these anti-bribery law considerations.

For more information, read Workplace anti-bribery rules.

You will have to pay tax and National Insurance contributions (NICs) on some types of staff expenses. Similarly, you must keep records of some types of expenses and make reports to HMRC. There are specific rules for different categories of expenses. Some categories have exemptions. If an exemption applies to a particular type of expense you generally won’t need to pay tax on expenses within that category. 

Exemptions are sometimes available when expenses within a particular category are kept below a certain level (eg £5 per night for incidental overnight expenses incurred during travel in the UK). It is, therefore, a good idea to check any exemptions available when you’re setting limits on expenses in your expenses policy.

The UK Government provides guidance on tax and reporting requirements for different categories of expenses and on how to report, pay tax on, and record your staff expenses

For more information, read Employee expenses and benefits

You should generally pay staff money following successful expense claims via payroll. This creates a record of your payments and ensures that you’re always being clear and transparent about your staff expenses payments. 

You can also use payroll to pay tax and NICs due on your expense payments. This is known as ‘payrolling’. To use this method, you’ll need to register to do so with HMRC before the start of the tax year. 

For more information, read Employee expenses and benefits and the Government’s guidance on payrolling.

The appropriate way to handle overspend on expenses depends on the situation. Sometimes, if there’s a good reason for additional costs being incurred, the best thing to do is to cover the additional expense. Staff members may have expenses that they must incur in order to perform their jobs. If such expenses go over expenses limits for a good reason (eg because a flight was cancelled and a staff member had to find last-minute accommodation) it’s often fair to the staff member to cover additional costs. 

This expenses policy template includes a clause stating that expense claims in such instances will be dealt with on a case-by-case basis and that the employer has discretion to approve them or not. This allows you to be a compassionate employer, whilst also allowing you to refuse any requests that you believe are truly unreasonable. 

If you believe that a staff member is abusing their entitlements under your expenses policy you can take disciplinary action against them. You should follow a Disciplinary procedure to help you follow employment laws when carrying out any disciplinary proceedings.

If you’re unsure about how to understand and follow your expense policy, it’s a good idea to Ask a lawyer for assistance. Also consider asking for advice if:

  • you need assistance complying with tax and recording requirements 

  • you’re concerned you may be breaking anti-bribery laws with entertaining expenses 

  • you’re covering expenses for staff members based outside of England, Wales, and Scotland

Other names for a Expense policy

Expenses policy, Employee expenses policy, Employee expense policy, Staff expenses policy, Staff expense policy, Staff expenses and benefits policy, Business expense policy, Expense reimbursement policy.