What is reimbursement?

There are several different types of expense reimbursement that you can offer – you might choose to offer all kinds of reimbursement, or only a few depending on your budget and the needs of your employees. Usually, an employee pays for goods and/or services out of their own pocket, then their company refunds them for this purchase.

Some employers might have something like an expenses pot for general reimbursements rather than offering individual reimbursements to employees. This can help you keep track of expenses as they go out and can simplify things, helping to stop you from overspending.

After all, your employees might not be just interested in reimbursement for travel or for food. They might need a new desk, chair or other equipment specific to their role, especially if they are working from home. 

What does the UK law say about employee expenses?

Different types of expenses fall under different UK rules, so employers often review the guidance relevant to the specific category of expense. The UK government provides a helpful A to Z of the different expenses or benefits rules. It is worth reading through this carefully as you might get caught out if you are not following the correct rules. 

According to the UK government, you may need to report reimbursements that you offer your employees to HMRC for tax purposes. On the other hand, some reimbursements are non-taxable.

The UK government says that you do not have to report what is known as an ‘approved amount’. However, according to the UK government website, if you pay over what is called the ‘approved amount’, you must ‘report it on form P11D’. The government also states that ‘you do not need to submit a P11D form for an employee if you’re paying tax on all their benefits through your payroll’.

Below, we run through some key examples of expenses reimbursement, how to offer them and how to report them.

Reimbursement for mileage and other travel expenses

Public sources note that UK employers typically decide whether to offer mileage or travel reimbursement, as it is not commonly listed among statutory employee entitlements. However, you might choose to provide it as part of a perks package in order to attract top candidates or to improve employee retention.

As more employees work from home on a full-time or flexible basis, offering reimbursement for mileage might only be useful to your employees if they are travelling to attend a training session or conference. 

Therefore, you might choose to give reimbursement for mileage or travel in general in order to cover the costs of an employee attending a training session or any other expense outside the usual cost of commuting to work.

Other kinds of travel expense which are often not included in a reimbursement scheme include things like taxi or lift services, luggage storage or garage parking. Therefore, it’s worth talking to your employee about this if they think that there could be a need for this type of reimbursement as well.

This means that you are less likely to get caught out if your employee asks for this reimbursement after an event – and means you are more likely to find ways of including it in your budget. 

When it comes to reporting travel expenses, the UK government states that if your employee is claiming expenses on their own vehicles for businesses to travel, there are certain rules. Their website states that there are ‘2 separate schemes used to deal with these mileage expenses – one for tax and one for National Insurance’. 

Meals reimbursement

You might choose to include meals reimbursement as part of your perks package or in certain situations like if your employee is attending a client meeting, networking convention, conference or training course. This might come in the form of vouchers or expenses paid to your employees. In this case, your employees might ask you to cover their costs of food and drink over multiple days, often for the duration of a particular event.

You might offer free food as part of an office perks scheme as well. As many employees make the switch from office working to home working, you might expand your free food scheme to include deliveries to an employee’s home. 

UK government advice says that if you are as an employer providing meals for your employees, you have certain tax, National Insurance and reporting obligations. Public UK government guidance outlines several factors that may be relevant when employers report meal-related benefits, such as:

• The overall cost of the meal
• Whether the meal was in a canteen that other staff members have access to
• Whether the meals were taken on your premises or off them
• If an employee’s meals are paid via vouchers or employee accounts

For more information on expenses rules in general, please visit the UK government website.

Employee stipends

You might provide a more general form of expenses reimbursement in the form of employee stipends. These can cover a broad range of expenses that your employee might want to claim throughout the year. They might include wellness stipends like gym memberships or fitness classes.

This is potentially a great way of offering your remote working employees some perks too. You might reimburse them for bandwidth usage, phone bills or any other equipment that they use to work with. It is worth discussing what equipment they use first, so you can decide whether you have the budget for their specific requirements.

How can you reimburse expenses effectively (including how to communicate this to an employee)

Keeping your employees in the loop when it comes to your expenses package is important, as it helps you to avoid confusion about what you can offer. You might choose to deliver this via an email to your staff, during a team meeting or during the hiring process itself. Consider including reminders or updates if your expenses policy has changed, or, simply to remind employees of what you offer. 

It is always worth keeping a guide to your company policies in general, which are easily accessible to your employees. This might be on your premises, on an intranet or via cloud storage. That way, employees can check your expenses policy before they need to make any claims. 

You can also use training to refresh employees on which expenses you offer, as well as how much. Training is a good way to educate your employees about the regulations around expenses payment, including reporting or how much is available in a given time. They might need to learn how your expenses stipend works.

When your business is scaling up, you might decide that you have a bigger budget for certain expenses. However, when a business grows, it might become difficult to communicate your expenses policy to all of your employees. Smaller companies might find that simply having a team meeting is enough to remind their employees.

In sum, having an expenses policy can be a great way to improve employee engagement and retention. It shows that you as a business care about covering expenses that would otherwise come out of an employee’s own pay packet. However, there are important factors to consider like whether you have the budget to cover certain expenses. This is where an expenses stipend or expenses pot can be useful.

Finally, familiarising yourself with the UK law surrounding the reporting of expenses is crucial for tax, National Insurance and other obligations. You might want to keep reports over a long period of time to make sure you have this information to hand and to prove you are staying compliant.