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An expenses policy is fundamental to an employer’s expenses process. It should provide guidance on what expenses can be claimed by employees, approval processes and the process for reimbursement of the expenditure.

It is reasonable to expect HMRC to pay particular attention to the way in which the exemption in ITEPA 2003, s 289A is being operated in any compliance checks, and a clear expenses policy will help ensure that the exemption is only applied where the expenditure by the employee is actually deductible or where any flat rate expenses paid are in line with HMRC’s published or otherwise agreed rates. A good expenses policy provides a strong basis for tax compliance as well as meeting the financial and regulatory requirements of the employer.