How Can You Find Jim’S Cost For The Business Trip Managing business travel expenses is crucial for the success of any company. If you’re responsible for this task, you’re on the front lines of overseeing one of the largest overheads and ensuring smooth cash flow. This guide is here to help alleviate some of the stress associated with expense management and assist you in establishing a streamlined process that will impress your colleagues and superiors.
Understanding Business Travel Expenses
Business travel expenses refer to costs incurred while traveling for business purposes. These expenses encompass the products or services essential for the trip and are typically associated with travel away from one’s home base for days or weeks.
What Employees Can Claim as Business Travel Expenses
The primary rule when claiming any expense is that it must be exclusively and necessarily incurred in the course of performing one’s job related to business objectives. In other words, the employee, not the business, should not personally benefit from claiming the expense. Here are some examples:
- Actual travel costs (e.g., flight, train ticket, hotel expenses).
- Subsistence expenditures (food and beverages consumed during the trip).
- Other costs arising directly from the journey, such as entertainment.
Expenses That Are Not Legitimate Travel Expenses
It’s equally important to understand what is not considered “Business travel expenses.” This list includes:
- Commuting to and from your regular office.
- Travel taken for private or personal reasons.
What About Driving? Can You Claim Expenses for Hiring a Car or Using Your Own Car for Business Purposes?
Yes, you can. To determine the exact amount you can claim, refer to our UK Mileage Allowance Guide.
You are obligated to report travel expenses for tax purposes. However, certain costs do not require reporting to HMRC (Her Majesty’s Revenue and Customs). For example, expenses related to an employee bus service or taxi services in the absence of ride-sharing options are exempt from tax reporting.
How to Manage the Travel and Expense Process
- Decide on the Employee Payment Method
There are two primary ways to handle expenses:
a. Ask employees to pay expenses upfront using their personal card, bank account, or cash, and then have them submit expense claims. b. Pay expenses directly from a company bank account or company card.
Company Credit/Spending Card
While there’s no legal requirement to do so, having employees submit expense claims can be time-consuming. Consider using a company spending card, which simplifies financial tracking. Many companies offer expense tracking and company credit cards, such as Pleo. These cards allow you to monitor and manage expenses efficiently. If you opt for company spending cards, research your options thoroughly before choosing one.
Paying with Personal Cards and Submitting Expense Claims
For many small to medium-sized businesses, having employees pay business expenses from their personal accounts is standard practice. Reimbursing expenses can be a time-intensive process for both administrative professionals and staff, particularly when tax receipts are involved. To streamline this method, consider using software like Expensify or Spendesk to digitize and track expenses.
- Establish a Clear Process for Expense Submission and Reimbursement
Whether you use paper forms, spreadsheets, or travel and expense software, having a well-defined process is crucial for efficient expense management. A clear process helps manage the influx of emails and sets expectations for employees awaiting reimbursement. Consider these process options:
a. Pre-trip expense projection: Ask employees to complete a projection before their trip to force them to anticipate their spending. b. Receipt and invoice types: Clearly specify the format required for evidence (e.g., tax invoices in PDF or physical receipts). c. Expense claim submission timeline: Ensure that expense claims are submitted within 5 working days after the business trip concludes. d. Expense reimbursement period: Commit to reimbursing employees within 15 to 30 days of receiving an expense claim, during which time the company can review expenses. e. Standardized expense report forms: If you choose not to use expense management software, provide standardized expense report forms accessible to all employees.
- Communicate the Expense Policy
Many companies incorporate their expense policy within their business travel policy. Ensuring compliance with this policy is essential. Regardless of the payment method your company uses, spending outside company rules can put the business in a difficult position. Make sure every employee understands the rules and adheres to them. Here are some ways to achieve this:
a. Company-wide emails every quarter: Send out quarterly emails with the policy to remind employees of the rules. b. All-hands meetings: Take a few minutes during all-hands meetings to discuss the importance of following the expense policy. Provide examples (without naming individuals) of both good and bad expense claims. c. Company intranet: Post the expense policy on your company’s intranet as a live document that is easily accessible. Link it to a tool like Google Docs to ensure updates don’t require employees to delete or disregard previous versions. d. Automate expenses: Consider using a tool like TravelPerk to automate expenses, eliminating the need for employees to report flight and accommodation expenses manually.
If you suspect that someone in your company is deliberately violating the rules and engaging in expenses fraud, refer to our guide on how to recognize and eliminate expenses fraud.
How to Calculate and Track Business Travel Expenses Like a Pro
Given that the average company spends around $950 per employee per year on domestic travel alone, it’s likely that administrators and those responsible for expense management will need to provide reports and breakdowns of the company’s travel expenditures. Here are some elements to establish to simplify your quarterly or yearly reporting:
- Record Everything and Tag Each Expense
Maintain a comprehensive record of all business expenses regularly. Ideally, this should be done daily, but at the very least, aim for twice a week. Ensure that every expenditure is accounted for, including cash payments, which can easily be overlooked. Using business accounting software is a highly recommended approach to managing records. Tag expenses for easier retrieval of meta-information when needed. Granular records provide better insights, so consider grouping and tagging travel expenses in multiple ways, such as by trip type, department, or expense type.
- Calculate Every Trip
Instead of immediately splitting travel and food costs into dedicated spreadsheets, calculate the total cost of each trip. This approach provides valuable data for assessing how much to allocate for future trips and helps identify trips or individuals with higher-than-average costs. Ensure that every element of the trip is accounted for, including travel costs (e.g., flights, trains, car rentals),