The complete guide to managing business travel expenses
Business travel expense management is incredibly important to the success of a company. If you are working in this area then you are at the forefront of managing cash flow and overseeing one of the business’s largest overheads. Using this guide is here to help you eliminate some of the stress associated with expense management and help you to build a process that will undoubtedly impress.
What exactly are business travel expenses?
A business travel expense is a cost incurred when traveling for business purposes. This can include the cost of products or services necessary for the trip and are usually associated with traveling away from home for days or weeks.
What business travel expenses can employees claim?
The key rule when claiming any expense is that it should be exclusively and necessarily incurred in the performance of your job as it relates to business objectives. What that means is that you (as opposed to your business) should not be personally gaining from claiming the expense.
Here are some examples:
- The actual costs of the travel (the flight, train ticket, hotel cost, etc)
- The subsistence expenditure (your food and drink consumed during the time you travel)
- Any other costs that came about because you made the journey such as entertainment.
What is not a legitimate travel expense
What you also need to consider though is what is not included in “Business travel expenses”. That list looks like this:
- Commuting to and from your usual office
- Any travel taken for private reasons.
What about driving? Can I claim expenses if I hire a car, or use my own car to drive for business reasons.? Yes, absolutely. To find out exactly how much you can claim, check out our UK Mileage Allowance Guide.
You are obliged to report on travel expenses for tax purposes. However, some costs do not require reporting to HMRC. Cost such as an employee bus service or taxi services when ride-sharing isn’t available are exempt from tax reporting.
How to manage the process of business travel expenses
1. Decide on the employee payment method
There are two main ways in which you can pay for expenses:
- Ask employees to pay them upfront using personal card/bank account/cash and then have them submit expense claims.
- Pay expenses directly from a company bank account or company card.
1. The company credit/spending card
Although there is no legal requirement to do so, having employees submit expense claims can cost time; you might want to consider a company spending card which, if nothing else, makes it much easier to keep track of the finances. There are a lot of companies that offer both expense tracking and company credit cards, such as Spendesk or Pleo – these will allow you to track and control expenses from one source.
If you decide to opt for company spending cards, be sure you conduct some research before going directly to your current corporate bank. Pleo have a good guide on how to choose a company credit card.
2. Pay with personal cards and submit expense claims
For many small to medium size businesses, this is the simpler option. Asking employees to pay business expenses from their personal account is pretty standard practice. Reimbursing expenses can be a time-consuming process for both Admin professionals and staff. Factors such as asking for tax receipts, only add complexity to the process. More details on the tax implications of claiming expenses can be found here. If this is the preferred method of your company, then it’s a good idea to use a software such as Expensify or Spendesk. These will help you digitize and track expenses.
2. Set out a clear process for expense submission & reimbursement
Whether using forms on paper, spreadsheets or expense software, having a very clear process will help you manage the mountains of emails but also set expectations for employees who might be waiting on expense reimbursements. Establishing service level agreements with staff will help you get the info you need in a timely manner and also stop staff sending follow-up emails asking about the status of claims.
Here are some process options for you to consider:
- Pre-trip expense projection – ask employees to complete a projection prior to their trip, this will force them to consider their spend.
- Receipt and invoice types – Be sure to state in what format you expect evidence to be provided (e.g. tax invoice in PDF/ physical receipt)
- Expense claim submission timeline – Ensure that expense claims are all made within 5 working days of the business trip finishing.
- Expense reimbursement period – The company commits to reimburse staff within 15- 30 days of the expense claim, during which period the company can query expenses.
If you are choosing not to use an expense management software, then be sure to have standardised expense report forms that are accessible to all employees.
3. Communicate the expense policy
Many companies include their expense policy within their business travel policy, and nearly all have issues around compliance. No matter what payment option your company has selected, spending outside company rules leaves the business in awkward situations. If you have given someone a company credit card, and they spend out of policy, then the money has already gone. If the employee has bought something on their personal card and made an expenses claim outside policy the employer faces the unpleasant scenario of either paying the bill or leaving an employee out of pocket and disgruntled.
The best way to avoid this is to make sure every employee knows the rules. Make sure you communicate the rules clearly and regularly, so they have no excuse but to follow them.
Here are ways to achieve this:
- Company-wide emails every quarter – Send an email with the policy every quarter, this may not be necessary if you are a small team.
- Talk about it at all-hands meetings – Your job is important and saves the company money, and people need to know the rules. At the next meeting ask to speak for a few minutes giving examples (not naming names) of good and bad expense claims
- Post it on your company intranet – Make sure it is a live document and easily accessible. Link it to a Google doc or whatever tool you use, this means updates don’t require you to ask employees to delete or disregard previous versions,
Wherever possible, automate expenses for them by using a tool like TravelPerk which eliminates employees having to report their flight and accommodation expenses.
If you’re worried that someone in your company is deliberately not following the rules and is cheating your business out of money, make sure to read 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 will spend around $950 per employee per year on domestic travel alone, it is likely that Admins and those working in expense management will be asked for reports and breakdowns of how the company is spending on travel. Here are some of the elements that will make your quarterly or yearly reporting much easier if you establish these elements now.
1. Record everything and tag each expense
Sounds obvious, but if you are not using a software to do this for you, this spending time on organising every receipt, invoice and expense report will pay massive dividends when you come to analyze spend. Travel and expense reporting are extremely important as in many countries these costs are tax-deductible, meaning big savings for companies.
The first thing to do is to make sure you are keeping a comprehensive record of all your business expenses on a regular basis. Doing this every day is best, but at the very least, you should aim to do it twice a week. Everything you spend must be tallied! Watch out for cash payments, these can easily be missed off your record, but they’re still a business expense, and they must not be forgotten. The best way to do this is to choose one of the many business accounting software on the market. You can see our recommendations on the major players here. It’s a good idea to tag expenses so you can easily pull meta information when needed. The more granular your records, the better, consider grouping and tagging travel expenses in multiple ways.
- By trip type (existing client, sales, corporate event)
- By department
- By expense type
It’s a good idea to make sure that your recurring expenses are set up in your accounting system. If you know that you’re going to pay a vendor every month, set that entry to recur in future months. That will make sure you don’t miss it, and it’ll help you better plan for the future.
2. Calculate every trip
It’s best to see the cost of the whole trip and not just immediately splitting travel and food costs into their dedicated spreadsheets. This will provide you with valuable data that will allow you to make judgement on how much to allocate for future trips to that region/event and allow you to identify trips or staff that perhaps seem to cost more than the average. Make sure every element of every trip is accounted for and review the trip as a whole.
This should include, but is not limited to:
- Travel cost – plane, train, car hire, this includes the petrol you put in the car
- Accommodation – Hotel, Airbnb, or wherever you stayed
- Food, drink
- Entertainment – either for clients or if permitted in policy
- Wi-Fi connections, or anything else you needed to get your business done on the road.
3. Categorize your spend
Your accounting software will come with pre-established categories ready for you to start categorizing your spend. Try to stick to these standard categories as much as you possibly can. It’s important because when it comes to filing your taxes, you’ll be able to clearly see which areas of your spending are higher or lower than they need to be.
For expenditure that is small and isn’t recurring, set up a “miscellaneous” expenses field.
Project your travel expenses
With all your expenses tallied and recorded, you can look at previous years spending and identify how much you’re likely to spend. This will help you see where you’re spending too much, or buy cheaper flights, hotels, etc in advance. Look at seasonality, recurring expenses, new employees coming in opening a new national office.
How to reduce business travel expenses
There’s a lot of ways you can reduce your business travel expenses, here are 6 that you can fix straightaway.
1. Do you have to stay the night?
Most low-cost airlines and even train companies have early morning and late-night options. While these can mean a little less sleep, they can also be a good way to save money as they mean you don’t have to pay for a night in a hotel or Airbnb. If you use a tool with automated travel policies, you should consider making all trips with an overnight stay require approval.
2. Get the point(s)
Airlines, hotels, car hire companies, and even alternative lodging providers all have loyalty programs that can potentially save your business a lot of money. Check out the different options they provide to see which one has the most benefits for you.
PRO TIP: Business travel booking solutions like TravelPerk will allow you to register your rewards number once and then automatically collect points every time you travel.
3. Cut the taxis
Taxis, especially to and from airports are often the most expensive option for getting to the city center after your flight has landed. Consider making it mandatory for your employees to use train, subway, bus, or shuttle services to save up to 50%, especially for those traveling alone.
4. Get corporate rates
If you have an office in more than one city and most of your travel is between offices, it can be worth negotiating a special corporate rate with nearby hotels. In fact, you can do this whenever you notice a lot of your travel is to the same city. Hotels often appreciate the repeat business. TravelPerk has an excellent corporate rate negotiation team that can do this for you.
4. Get the Per Diem right
Do you provide your travelers with a daily allowance for meals and other incidental expenses? Make sure to adjust it on a city by city basis. There can be big fluctuations in prices even within the EU for example. Remember HMRC sets rates on meal allowance and what you can reclaim, so keep the per diem close to that so you pay less.
5. Recover the tax
Each year companies fail to recover tax (VAT) on billions of travel spend. Each company that does this is spending between 5 and 25% more than they have to!
UK Companies are entitled to recover VAT on domestic business travel through their UK VAT return. UK Companies are also entitled to recover VAT incurred in other countries but this VAT is recovered through different methods (some of which are online and some which require a paper form to be completed). Click here for our guide on claiming VAT on European business travel.
There is, of course, some confusion on what VAT recovery will look like post Brexit. For all the answers, check out how Brexit will impact VAT recovery in the UK.