While expense management software makes recording, tracking and monitoring your expenses easy, it's still essential to understand what expense receipts you should keep and why.
In this article, we’ll explore the different types of expense receipts, explain why you should keep them and provide some helpful tips for improving expense management.
Get started with ExpenseOnDemand today to automate your expense management.
An expense receipt is a document that shows proof of payment for business expenses.
An expense receipt contains vital information such as:
A valid proof of purchase is any document that proves the purchase of a business expenditure. A proof of purchase can be used by businesses for claiming tax deductions, or by employees for claiming expense reimbursement. Receipts are the most common form of proof of purchase, but other documentation, such as an invoice, can also be used if they contain detailed information about the purchase.
One of the main reasons a business must keep expense receipts is to show tax authorities proof of their expenses when they file their tax returns.
In the UK, businesses must keep detailed records of expenses for tax purposes. Expense receipts serve not only as proof of purchase but also show that your expenses were business-related. For example, the description of an expense receipt may list filing cabinets, which clearly qualify as a business expenditure.
When it comes to UK tax laws, the HM Revenue and Customs (HMRC) requires businesses to keep detailed records of expense receipts for employee reimbursements. For example, if an employee travels for business purposes, their employer must keep financial records of the expenses incurred during the trip.
Every country has their own tax code, but most countries follow a similar process, where businesses must show receipts and documentation that prove their expenses. In the US, the IRS also requires businesses to keep and submit expense receipts.
While submitting expense receipts is required by tax regulations, you can also qualify for tax deductions by submitting your expenses. If you fail to record and submit all of your expense receipts, you may miss out on tax deductions and pay more taxes than necessary.
Expense receipts can also help you reimburse your employees for the business expenses they incur. For example, if an employee goes on a business trip, they can submit receipts for hotels and flight tickets to get the appropriate reimbursement.
By using receipts to track out-of-pocket expenses, employees can be reimbursed for all business purchases they make. Providing fair reimbursement for expenses keeps your employees happy. In addition, you can also claim these expenditures during tax time.
With ExpenseOnDemand’s AI receipt scanning app, employees can scan their paper receipts at any time, anywhere. Expense receipts are automatically uploaded to the software, making it easy to track expenses.
Meal expenses are costs incurred for meals during business-related activities. This could include meals for client meetings or during travel. Meal expense receipts should include the date, purchase amount, description, and location.
Typically, meal expenses must stay within the limits set out by local tax laws. For example, in the UK there are regulations on what does and does not qualify as a meal expense.
Mileage costs are business-related travel costs for employees who use a personal vehicle. For example, employees can be reimbursed for the costs of using their car to travel to meet with clients or attend a conference.
Employers must record the date, destination, purpose of their trip and total kilometers driven. Mileage allowance covers the cost of fuel, road taxes, insurance, and wear and tear for using your personal vehicle. According to UK regulations, there are specific mileage rates that must be paid to employees.
Transport costs are costs that an employer may cover for their employee to travel to and from work, for example, public transport or ride-sharing services. Employers should record the date of purchase, mode of transport, origin and destination, and the transportation cost.
A company should also collect receipts for business-related travel expenses. Business-related travel is any travelling solely for business purposes. For example, if you fly to another city for a conference, the flight tickets are a business expense.
You should also keep accommodation expenses for employees travelling for business purposes. For example, if an employee is on a business trip and has to stay overnight, the accommodation is a business expense.
With ExpenseOnDemand’s receipt scanner app, your employees can capture essential data from the receipts they receive while travelling. Travel expenses are then automatically sent to the finance department for review.
Miscellaneous business expenses are any other expenses that don't fit into the above categories but are clearly necessary for the operation of a business. This could include:
Receipts for miscellaneous business expenses should show the date, item description, purchase amount, and documentation proving the expenditure is business-related.
When making a purchase in person, most businesses still provide customers with paper receipts. Paper receipts have all the necessary information such as the description of purchase items, date and vendor. For this reason, they are usually valid proof of payment.
For businesses that are less tech-savvy, using paper receipts may seem more convenient. However, paper receipts are easy to lose and when manually entering data from paper receipts, it’s easy to make mistakes.
Digitised receipts (e-receipts) are superior to traditional paper receipts in many ways, including access, storage, and tracking. With ExpenseOnDemand’s receipt scanner app, employees can simply take a picture of their paper receipts and the app will record all the information in a digital format. The digital receipt is then stored on the cloud for easy access.
There are many other benefits of digital receipts, including:
Now that you understand what expenses you should keep track of and why, let's dive into some key strategies for effective expense management.
Automated expense management solutions like ExpenseOnDemand make it much easier to collect receipts and track your expenses. ExpenseOnDemand eliminates the need for manual data entry and automates the entire expense receipt process, saving you time and money and reducing manual data entry errors.
Users can digitise paper receipts simply by taking a picture of their receipt with the receipt-scanning app. ExpenseOnDemand automatically categorises expenses, giving you an accurate overview of your expenses and keeping your records ready for tax time.
ExpenseOnDemand also integrates with leading accounting software, making for a seamless connection between your receipt collection process and your existing financial system.
All employees in an organisation are responsible for keeping their expense receipts. That means businesses must set clear guidelines on how to collect receipts, what information to record, and how to use software to make the process easier.
Set clear and understandable guidelines and offer additional resources, such as training, to help all employees understand the receipt collection process.
It's also essential to track the expenses that your employees are incurring. Businesses can use tools such as ExpenseOnDemand to generate detailed reports of expenses and gain valuable insights into spending patterns.
With expense management software you can analyse expenses and identify unusual spikes in spending. This makes it easier to track overspending or identify expenses that are miscategorised as business expenses.
Creating an expense approval workflow is one of the easiest ways to prevent unauthorised spending. With software like ExpenseOnDemand, businesses can quickly set up an efficient expense approval workflow, so that all expenses are approved before payment.
With ExpenseOnDemand, you can give specific employees the responsibility to approve expenses. When other employees request approval for an expense, the approver can decide whether it meets the requirements of a business expense before approving the request.
In this way, businesses can ensure compliance with tax laws and regulations, and make their expense management process more efficient.
One of the best ways to improve expense management is to build a culture of trust and transparency around expenses. Support a work culture where employees are encouraged to report expenses and discuss their needs.
By talking openly about business expenses, it's easier to identify which expenses qualify as legitimate and which do not qualify as business expenditures. This can give all employees a solid understanding of expenses and help you avoid compliance issues caused by miscategorisation.
To make sure your expense receipts meet the HMRC rules and regulations, receipts must include some key information:
Receipts for business expenses should also include the business purpose of the expense, either directly on the receipt or in attached documentation.
For example, if you're submitting a flight ticket receipt, then you should indicate that the flight was needed to attend a business conference. Companies must keep expense records for six years from the end of the accounting period.
For more detailed information, the HMRC provides a detailed guide on keeping expense records for tax returns.
Complying with your local tax laws and regulations is important for several reasons:
Tracking expense receipts can be complicated, but keeping receipts is essential in ensuring your business complies with your local tax regulations and your business receives the tax deductions it’s entitled to.
Understanding what receipts you need to keep and the information they should contain can make the process easier. And using software like ExpenseOnDemand can make the process significantly faster and eliminate errors that come with manual data entry.
Get started with ExpenseOnDemand today and simplify your receipt collection process.
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