For any business, trying to safely navigate through the maze of legislation covering benefits and expenses is a major challenge – especially for those with limited accountancy resources to fall back on.
What’s so tough to manage is the fact that HMRC laws and regulations are constantly changing. An accounting process which ticks all the compliance boxes one year can become a potential breach as the goalposts change.
And this is a particularly turbulent period for those managing finances, as the UK government has been carrying out a root-and-branch review of how company benefits and expenses should be handled.
This is being overseen by the Office of Tax Simplification and, as the name suggests, its mission is to reduce the confusion and complexity faced by SMEs.
In doing so, however, it has meant many areas being in a state of flux as the raft of recommendations starts to trickle down and become real-world legislation.
The biggest change, introduced for the 2016/17 tax year, has been a push to integrate all expenses reporting into the payroll system, instead of having to rely on separate form filling.
This has been done by scrapping the old system in which employers completed either a yearly P11D or P9D form, based on whether employees earned above or below a £8,500 threshold.
For any expenses or benefits not covered by the payroll system, the P11D still exists or alternatively companies are encouraged to set up a PAYE Settlement Agreement (PSA) with HMRC.
A PSA provides reporting exemptions to cover items categorised as minor, irregular or difficult to quantify. The tricky part comes in judging which costs qualify for each category.
Similar judgements have to be made with another recent change, the introduction of tax exemption for “trivial benefits in kind”. This is meant to cover any small perks or rewards that a company may provide employees – such as a Christmas box of chocolates.
So while the general “direction of travel” with these tax changes is towards simplification and the reduction of paperwork, it’s also placing more responsibility on finance teams to supply and store accurate information.
With more responsibility comes greater risk and it’s vital that a business now has all the relevant information needed to justify any of its actions to tax officials.
And while the intricacies of HMRC regulation continue to morph, the core responsibility of a company remains the same. Employers still need to ensure that any expenses reimbursed are genuine business costs incurred by the employee.
Companies are still required to show HMRC that each have a robust expenses system which provides tried-and-tested processes to manage and monitor employee costs.
It’s the reason why digital expense management systems have become an essential tool, helping SMEs to safely navigate through the choppy seas of UK tax legislation.
This kind of system does this by providing a powerful and flexible way to manage and monitor an organisation’s expenses policy. It replaces the old paper-based ways of working with efficient automated processes.
This helps to reduce the risk of accounting errors and employee fraud, as well as generating a detailed record of all employee claims, down to the exact distance and route of any mileage expense claimed.
It gives SMEs access to the kind of in-depth information that HMRC is looking for whenever it’s investigating or auditing an organisation. It’s when this kind of data isn’t available that suspicions are liable to be raised.
The other major advantage of a digital system is the ability to handle the constantly-shifting sands of tax regulation. Using cloud-based technology, any policy adjustment is instantly activated for anyone using the system.
Notifications and messages to inform employees of changes can be delivered via the smartphone app. A similar change, using the old paper-based system, could take days or even weeks to be communicated and enforced throughout an organisation.
So while Albert Einstein’s view of taxes is prescient for today’s SMEs, there are some shafts of light at the end of the tunnel with digital systems giving organisations a much greater ability to handle these constant legislative changes.
And while the on-going tax reforms have created an inevitable period of flux, the outcome should be a simpler and more business-friendly environment. When combined with smarter management tools, tax has the potential to be less taxing than ever before.
Adam Reynolds is the CEO of webexpenses.
Webexpenses provides a smarter way to manage your employee expenses. Find out more here.
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