HMRC Compliance: Keeping the Tax Man Happy

Matt Lewis, the EMEA Director of Compliance at Concur, knows a thing or two about VAT, tax, compliance and HMRC. More than 19 years’ ago he started working as a VAT inspector at HMRC where he went out to businesses to make sure they were doing the right thing and paying the right amount of VAT. Since then, he has learned a lot about what makes the tax man happy – these are some of his insights.

There’s a common misconception…

Once HMRC decide to audit a company’s travel and expense (T&E) process people assume that they’re only interested in the completed forms and the receipts that are attached to them – but they’re not. They’re interested in the entire end-to-end process. Clearly the forms and receipts are a major part of any audit, but first HMRC need to establish how far they need to delve into the T&E process.

What are HMRC interested in?

They look at the whole process for weaknesses, but mainly focus on  the following 6 things:

  • A strong and enforced policy
  • Appropriate approval processes
  • Appropriate documentation
  • Appropriate checks and controls
  • Tax and VAT compliance
  • A robust and secure payment process

Here’s why:

A strong and enforced policy

A good policy covers what can and cannot be reimbursed to an employee when they’re travelling for business. It sets up the ground rules: how your employees should travel for business, and how you expect them to spend the company’s money. It should also set out your mileage reimbursement rules (HMRC is particularly interested in this area). It’s entirely up to an organisation whether they have a T&E policy, or not, and what goes into that policy – but best practice from our clients tells us that it’s the basis of any good T&E process.

Appropriate approval processes

HMRC want to make sure that the right level of people in the business are signing off the right level of expenses and that every expense form is signed off at some point, so that the company accepts liability for that reimbursement. This includes senior people within the company submitting their expenses and having them approved.

Appropriate documentation

‘Appropriate documentation’ means a full and robust end-to-end record of forms, receipts, and approval processes which allow the company to check that things don’t fall through the cracks. There should be a business reason for incurring  expenditure for every line item. And every line item should be documented, supported by an appropriate receipt to show that the money has been spent, and have a signature to show that someone appropriate has checked that it complies with your company policy.

Appropriate checks and controls

HMRC looks to make sure that appropriate checks and controls have been carried out on those completed forms. Typically these checks are performed by your finance team, or outsourced as an audit process to a third party.There is no set guideline on what you should be checking – but you should be able to fulfil the requirements above and have some kind of audit to make sure the right receipt is attached – and that the right VAT receipt is attached if VAT is being claimed.

Tax and VAT compliance

To keep the tax man happy when it comes to tax and VAT compliance, make sure that there is appropriate evidence for VAT-recovery purposes. Things to be aware of are P11Ds and what is included in your dispensation, Personal Settlement Agreements (PSAs), valid VAT receipts for mileage and that any personal items have been identified and dealt with correctly.

A robust and secure payment process

It’s also important to HMRC that the payment process is not vulnerable – that it prevents employees from dipping into funds as they wish. They will be looking for risk areas – and they might consider investigating these further during an audit.

Want to know more? Watch the webinar

This is only the tip of the iceberg. Find out more about these six points; watch Matt’s ‘HMRC Compliance: Keeping the Tax Man Happy’ webinar, on-demand. Or download the myth buster guides about UK tax, company expenses, and business travel.