If you’ve got employees, the chances are you’ll be familiar with expense receipts. On the one hand, they’re great: they allow your staff to take a customer out for lunch, get a train ticket to that conference or pick up a gadget that makes remote working easier. Work-related costs don’t need to come out of your employees’ pockets and the company can claim back the VAT.
But expense receipts also have a dark side: the admin they generate.
Anyone working in a company’s finance administration team will tell you all about those little slips of paper that get lost like odd socks, forgotten like confetti, or that are incomplete or invalid when they do show up. Rare are those who appreciate the hours spent processing expense receipts, who don’t find the task too time-consuming and, let’s face it, dull; nothing says mundane like flicking through expense slips.
Yet dealing with them correctly is paramount as the penalties can be heavy if the numbers don’t stack up in the eyes of the tax inspectors.
So then, what are the golden rules to follow to stop yourself or your staff from getting mixed up amid all the paperwork? What can you do to make managing expenses as simple as possible?
Surely there’s a better way?
Of course there is. Although we have no idea how it took so long for Humanity to find it, what we can do is share with you the long-overdue solution.
Read our guide and we’ll tell all.
Expense reports: the need-to-knows
All expenses paid in advance by any employee carrying out their professional duties must be reimbursed. So far, so fair enough.
The reimbursement process requires following certain, rigid rules and will inevitably involve valid expense reports, to be able to prove to the authorities that the employee did indeed make a purchase. Hence the un-loved paper documents showing the nature of the expense, the amount and the date. To be valid, each report must be accompanied by the relevant proof of purchase from the restaurant, travel company, hotel, shop or wherever else the employee spent her or his money. And this is where it can start to get complicated, so let’s keep things simple.
Which expenses are we talking about, exactly?
Only professional expenses are reimbursable and can generate expense reports.
💡 Good to know: the expense must be proportional to the needs of the company. If it’s not, it’s known as ‘sumptuary’ or extravagant spending, for example stretched limousines, Michelin stars and presidential suites in luxury hotels. Expenses like these are highly unlikely to be valid.
Business expenses include:
- travel costs;
- hotel or accommodation costs;
- food and drink costs;
- equipment costs;
- clothing costs, where the job requires a particular attire.
Example: you own an SME specializing in construction.
- One of your employees buys overalls for work, a safety helmet, and durable work boots. These items are needed to carry out her work as a builder. It therefore counts as a professional expense that is reimbursable upon the provision of a proof of purchase and an expense report.
- Your business partner invests in a three-piece dinner suit. This attire is not indispensable for carrying out his job as a construction site foreman and, as a result, the expense should not be reimbursed.
The different ways of reimbursing business expenses
Expenses can be reimbursed either as actual costs or as a fixed allowance.
💡 Good to know: employers are free to apply whichever method of reimbursement they want (a little prior consultation with staff is recommended, but not mandatory). They can also choose to reimburse different employees using different methods, according to their role. Whatever the repayment method, we recommend applying the same expense policy to all staff, that’s to say the rules governing exactly what employees can and can’t buy with company money. Otherwise, the whole expense situation risks becoming very complicated very quickly.
"Actual cost" reimbursement
Reimbursing actual costs means repaying the exact amount of money spent, penny for penny and purchase for purchase.
Example: you pay €65.50 to book a hotel room for an overnight business trip. You’re reimbursed by actual cost so your employer pays you back exactly €65.50.
For actual cost reimbursement, a proof of purchase receipt is mandatory.
"Fixed allowance" reimbursement
A fixed allowance is a lump sum paid by the employer to the employee. All that employee’s expenses come out of that lump sum. In these cases, the reimbursement rate for many types of expense must respect limits set by tax authorities.
💡 Good to know: be careful, as these legal limits change almost every year. Keep up to date with them to avoid confusion and the risk of sanctions.
Among the business expenses that may be reimbursed by a fixed allowance, we find:
- Food and drinks bought away from the place of work – the limit set in France for 2021 is €19.10 per restaurant meal while away on a business trip (more details here);
- Food and drinks bought on-site at the place of work, for example in a company cantine or vending machine – the 2021 limit in France is €6.70 per meal;
- Hotel rates and fees – the limit in France for 2021 depends on the length of stay and location but is €68.50 per night in and around Paris and €50.80 elsewhere in France (see a full breakdown here);
- Travel expenses;
- Mileage for employees who drive for work purposes – the limit in France depends on the length of journey and the horsepower category of the vehicle’s engine (a detailed table of mileage limits can be found here);
- Equipment and material costs.
For fixed allowances, it is not a legal obligation to provide a proof of purchase receipt. However, the expense must be provably real and justifiable. URSSAF, the French social security payment collector, does carry out inspections and punishes anyone found to be committing expense fraud, meaning it’s wise to at least keep one of more of the following:
- approval of the expense report;
- emails (inviting a customer to lunch, for example);
- order confirmation emails for purchases made online.
The basics of expense management
Putting an expense report in the right format
Rules change from country to country but we’ll take France as an example. In theory, there are no French legal requirements about what information to put on an expense report. In the interests of being precise, however, it’s a good idea to include at least:
- the name of the person claiming the expense;
- the nature, reason and date of the expense;
- the means of payment used;
- the amount spent (both including and excluding tax);
- the VAT paid.
Expense reports are often put into table format for easier readability.
🔔 Important: reports for certain expenses are required to mention some specific information. That’s the case for food and drink expenses and mileage claims.
→ For food and drink
- the name and job title of the customer benefitting from the expense;
- the name of the company he or she is representing.
→ For mileage
- the date of and reason for the journey;
- the number of miles (or kilometres) travelled;
- the names and addresses of the people (customers, partners etc.) visited on the journey;
- the tax rating of the vehicle used. This refers to the horsepower (in France, CV) of the engine and can be found on the vehicle registration document (in France, la carte grise).
Collect the required documents
The receipt or proof of purchase is probably the most important document to include. In most circumstances (for actual cost expenses), if you don’t have a receipt, you can’t get the business expense reimbursed.
💡 Good to know: the employer can still decide to reimburse an expense without a proof of purchase, although it would have to be in the form of a payment-in-kind. This is less advantageous, however, for two main reasons:
- payments-in-kind are subject to social charges;
- the expense is non-tax deductible.
To be valid, the proof of purchase must include:
- the date of the expense;
- the amount, both including and excluding taxes;
- the VAT rate applied;
- the name of the vendor or service supplier.
Among valid proofs of purchase are:
- a receipt of payment for online purchases;
- an invoice confirming payment;
- a paper shop receipt.
A bank statement or debit/credit card ticket is not considered valid proof of purchase as it doesn’t include all the required information.
All proofs of purchase must be kept for a period of 10 years following the date of the expense. To avoid filling cupboards and boxes with all the paper receipts collected over time, it’s a good idea to automate your expense receipts. Since 2016, automated receipts have the same legal value as their cumbersome paper counterparts and will be valid in the eyes of tax and social security collectors like URSSAF.
🔔 Important: remember that only expenses reimbursed as actual costs require a proof of purchase. In the case of fixed allowances, receipts are not mandatory. However, it’s still a good idea to keep hold of some sort of paper trail to show to tax inspectors in case of an audit.
What to do about non-justified expenses reports
Generally, a lost or non-justified expense report will not be reimbursed. However (and this could come in very handy one day!), an employee can force the issue with a sworn statement. It’s not a practice that’s particularly favoured by URSSAF but it may do the trick in exceptional circumstances and for small amounts.
The sworn statement must include:
- the name and contact details of the employee concerned;
- the location, nature and amount of the expense;
- the vendor or service provider who billed the expense;
- the signature of the employee concerned.
Ideally, the sworn statement should also be accompanied by a bank statement.
Expense reports and accounting
All expense reports must be processed into the bookkeeping. That means doing the following:
- add the expense report into the purchasing log;
- debit the expense account relevant to that particular type of expense.
If that all seems complicated, let’s keep it simple...
Step 1: record the expense in the purchasing log
The purchases journal or purchase log is an accounting register of all that a company has paid for, like merchandise, primary materials and general running costs. Expense reports are no different and need to be included in the log. You’ll need to ensure the presence of the following information:
- the date and amount of the purchase;
- the invoice number;
- the expense account to be debited/credited;
- the expense details (a short description of what the expense is, for example ‘travel expense’ or ‘meal expense’)
Step 2: debit the relevant expense account
The account to debit depends on the nature of the expense in question.
In France, expense reports are usually referenced with category codes, for example:
- Expense category 6063 - “Maintenance and upkeep products and small pieces of equipment”
- Expense category 6064 - “Administrative and office supplies”
- Expense category 6181 – “General documentation” (non-business documents like newspapers and magazines etc.)
- Expense category 6183 – “Technical documentation” (business-related documents)
- Expense category 6251 – “Travel” (for work-related travel costs like train tickets, parking costs, road tolls etc.)
- Expense category 6256 – “Missions” (accommodation expenses for business trips)
- Expense category 6257 – “Hospitality” (such as inviting customers to lunch)
- Expense category 6234 – “Gifts to customers” (non-related to hospitality)
- Expense category 626 - “Postage and telecoms costs” (for employees’ work phone contracts, for example).
You may find that an expense doesn’t fit conveniently into any of the above expense categories. In that case, you can consult the full catalogue of account codes online.
Claiming back VAT on expenses
Value Added Tax (VAT) is a tax that is separate from the overall expense.
All companies invoice the VAT on the sale of their products or services and collect this tax on behalf of the state. To compensate for doing this, they are allowed to claim back the tax on business expenses, which is why there are known as being VAT-deductible.
Example: you bought a new computer for your company, costing you €1,000 including taxes. You can claim back the VAT from that amount, which is set at, say, 20%. Therefore, you will be reimbursed €200.
There are two conditions that must be met in order to reclaim VAT from expenses:
- 1st condition: the item must be professional expense incurred to benefit the company
- 2nd condition: the proof of payment must include the amount both including and excluding tax, the VAT rate and the name of the company
🔔 Important: some business expenses are not VAT-deductible. These include accommodation and travel expenses.
Tips for managing receipts and reports
Establish an expenses policy
You’re highly unlikely to achieve clarity in your expenses without a clear expense policy. If there are no defined rules on expenses, no formal constitution as it were, you can expect expense anarchy.
Before writing out your policy, take the time to study the difficulties you’re currently facing. What complications do you have in the way your company handles expenses today?
- Paper receipts keep getting lost?
- Do some employees take too much time submitting receipts and create a backlog of expense reports?
- Do you have trouble gathering all the information you need to create an expense report?
With these issues in mind, you’ll find it easier to establish an effective expenses policy capable of addressing your current problems.
For example, you could decide to:
- define limits for each kind of expense (within URSSAF’s boundaries, of course);
- impose deadlines for submitting receipts;
- set out a reasonable reimbursement timeframe;
- train new employees in the best practices of creating expense reports;
- list the documents required for each type of expense.
We would advise you to draw up a document that brings these elements together and to communicate to staff internally. All employees would then have access to the same level of information, making the future management of expense notes more fluid.
Choose to automate your expense reports
Some administrative and finance teams still manage expenses on platforms like Excel and Google Sheet. Others even continue to process expenses manually and generate filing cabinets full of paper receipts and expense slips.
Managing expenses demands rigor and organization. Don’t forget that proofs of purchase must be kept for 10 years, which means considerable paperwork as your business grows and the flow of expenses increases.
There are, fortunately, new digital solutions that can simplify the task for you by relying on the principle of automated expense reports. With these systems, your employees no longer need to keep carrying paper receipts around in their wallets; they simply take a photo of these receipts and deposit them on an app dedicated to that very purpose.
This means no more chasing up receipts. The expense reports are filed away electronically and are accessible with just a few clicks when there’s an audit. The employees, meanwhile, also benefit by being reimbursed in good time.
At Qonto, we’ve developed a tool that even detects VAT automatically, to save you even more time when it comes to your bookkeeping.
Do away with expense reports thanks to business payment cards
Many companies have struggled with managing expenses because of the complexities of the process. Errors can occur even within the best-organized system, and even with automated processes.
Not all automation systems allow for the automatic entry of transaction information. In some cases, you will still have to input data manually. It’s a boring and time-consuming affair that provides little added value to your company.
So why not just do away with expense reports entirely? It is, after all, perfectly possible with business payment cards.
There are two types of payment card that allow you to avoid expense slips:
- a pre-paid card that’s topped up by the employer according to the needs of the company;
- a debit card associated to a company account.
Both options boast multiple advantages.
- Employees no longer need to pay expenses in advance. This removes the need for expense reports in the first place. However, proof of purchase receipts are still necessary in order to show that expenses are business-related and so that the company can claim back the VAT.
- You keep control over your company’ expenses. With Qonto, you can get personalized payment cards for individual employees or teams and set payment limits according to what they need in order to be able to do their job.
- Collecting receipts becomes a more fluid process. With your Qonto cards, employees take a photo of their receipts on their phone, submit the photo to the app and the data is transferred automatically. That negates the need for highly-losable slips of paper receipts and the time required to find and process them.
🔔 One thing to look out for: some business payment cards are linked to the employee’s account. In these cases, an expense report will be needed for the reimbursement.
That’s it for this guided tour around the world of business expenses. We’ve seen the benefits of expenses as well as the downside to treating them. There are options out there to help you avoid many of the inconveniences, now it’s down to you to choose the most efficient expense management process for your business.