A staff expenses policy sets out what business expenses staff can claim, the rules for claiming, and how the company processes payment. A well-drafted policy aligns with HMRC exemption rules so genuinely business expenses do not need P11D reporting, controls cost, and supports anti-bribery compliance under the Bribery Act 2010. Most UK SMEs need a written policy as soon as more than one or two people are claiming expenses regularly.
This guide covers why every business needs a written policy, what to include, the HMRC rules for tax-free reimbursement, how to avoid P11D reporting, and a template policy outline.
Why every business needs one
Three reasons:
Tax compliance
HMRC distinguishes between business expenses (tax-free if reimbursed correctly) and benefits in kind (taxable, reportable on P11D). The line between the two is set by HMRC’s exemption rules. A clear policy that mirrors those rules reduces both tax risk and admin burden.
Cost control
Without a policy, expense claims drift. Staff over-claim on some categories and under-claim on others; finance struggles to challenge inconsistent claims. A policy sets clear limits (per diem, hotel maximums, travel class) so the cost base is predictable.
Anti-bribery compliance
The Bribery Act 2010 created a corporate offence of failing to prevent bribery (section 7). Adequate procedures are a defence. A staff expenses policy that addresses corporate hospitality, gifts, and unusual entertainment is part of those procedures. Without a policy, expense claims can include or conceal bribery without triggering any review.
What to include
A complete policy covers six areas:
Eligible expense categories
The categories you will reimburse:
- Travel. Business travel by train, taxi, plane, or personal vehicle (with mileage rates). State approved class of travel (typically standard for short journeys, with discretion above a threshold).
- Subsistence. Meals while travelling on business. Set per-meal or daily limits.
- Accommodation. Hotels for business travel. Set city-tier maximums.
- Mileage. Use HMRC approved mileage allowance payments (45p first 10,000 miles, 25p above for cars, 24p for motorcycles, 20p for bicycles).
- Entertainment. Strict rules apply — see below.
- Training. Courses, books, professional subscriptions if relevant to the role.
- Communications. Mobile phone, home broadband (with BIK considerations).
Approval limits
Who can approve what value:
- Up to £100 — line manager
- £100 to £500 — department head
- £500 to £2,500 — director
- Above £2,500 — board approval
Set the thresholds at levels that fit your business size.
Receipt and evidence requirements
For every claim:
- Original receipt (digital or paper)
- Date, supplier, purpose, amount
- Names of attendees (for entertainment)
- VAT amount where applicable
Without proper evidence, the claim is not valid for tax-free reimbursement.
Claim process
A clear sequence:
- Submit claim through expense software or company form within X days of incurring
- Line manager reviews and approves
- Finance processes for payment within Y days
- Reimbursement via payroll or separate BACS
Non-claimable items
What the company will not reimburse:
- Commuting (travel between home and normal workplace is not deductible — HMRC specific rule)
- Alcohol-only entertainment
- Personal items
- Fines and penalties
- Spousal travel
- Excessive entertainment
Compliance and audit
Statement that claims are subject to review, that fraudulent claims are a disciplinary matter, and that the policy supports the company’s anti-bribery procedures.
HMRC rules
The most important HMRC rules:
Exemption for paid-or-reimbursed expenses
From 6 April 2016, the old “dispensation” regime was replaced by an exemption for genuinely business expenses paid or reimbursed by the employer. Where the expense would be deductible under the standard tax rules (incurred wholly, exclusively, and necessarily in the performance of the duties of employment), reimbursement is tax-free and does not require P11D reporting.
Conditions for the exemption:
- The expense must be genuinely business
- The employer must check, sample, or otherwise validate claims
- Documentation must be kept
Approved mileage rates (AMAP)
HMRC’s Approved Mileage Allowance Payments rates:
- Cars and vans: 45p per mile for first 10,000 miles, 25p above
- Motorcycles: 24p per mile
- Bicycles: 20p per mile
Reimbursement at or below the AMAP rate is tax-free; reimbursement above the AMAP rate is taxable on the excess.
Subsistence — benchmark scale rates
HMRC publishes benchmark scale rates for subsistence on business travel (per-meal rates depending on duration of trip). Reimbursement at or below the scale rate is tax-free without further evidence; above the scale rate requires receipts.
Entertainment
Business entertainment of customers and clients is not deductible for Corporation Tax purposes (with limited exceptions). However, reimbursement to an employee for client entertainment they have arranged is tax-free for the employee — the cost just sits in the company P&L without tax relief.
Entertaining staff (Christmas parties, summer events) has a separate £150-per-head annual exemption, provided certain conditions are met.
To pick expense management software that handles HMRC compliance for you, compare expense management software.
Avoiding P11D reporting
The exemption from P11D reporting applies where:
- The expense is genuinely business (would have been deductible if paid by the employee)
- The reimbursement is at or below HMRC’s approved rates (for travel, mileage, and subsistence)
- The employer has a checking process
Where these conditions are met, no P11D entry is required for the expense. Where they are not met, the expense is a benefit in kind and must be reported on P11D with Class 1A NI on the value.
Salary sacrifice trap
Avoid structuring expense reimbursement as salary sacrifice. The Optional Remuneration Arrangement rules from 2017 deny the exemption where benefits are provided in lieu of cash earnings.
Building approvals into payroll software
Modern expense apps (Pleo, Soldo, Expensify, Xero Expenses, QuickBooks Receipts) automate most of the policy:
- Limits enforced at point of claim
- Receipt capture via mobile
- Approval workflow built in
- Direct integration to accounting and payroll
- VAT extraction
For a small business under 20 employees, an expense app typically costs £4–£10 per active user per month and pays back through reduced admin and improved compliance.
Template policy outline
A minimum-viable policy structure:
- Purpose and scope
- Authorised expense categories with limits
- Approval matrix
- Receipt and submission requirements
- Mileage and subsistence rates (linking to HMRC AMAP and scale rates)
- Non-claimable items
- Claim and reimbursement timeline
- Anti-bribery clause
- Disciplinary consequences for false claims
- Signature block (employee acknowledgement)
Most companies fit the policy on two to four pages. Anything longer typically falls out of date faster than it gets read.
Key takeaways
- A staff expenses policy aligns with HMRC exemption rules to keep reimbursement tax-free
- HMRC mileage rates: 45p / 25p (cars), 24p (motorcycles), 20p (bicycles)
- Genuinely business expenses paid or reimbursed are exempt from P11D reporting
- Salary sacrifice does not get the exemption (Optional Remuneration Arrangement rules)
- Anti-bribery compliance under Bribery Act 2010 requires written procedures around hospitality
- Expense management software automates most policy enforcement at low cost
Frequently asked questions
Are employee expenses tax-free? Genuinely business expenses paid or reimbursed by the employer are exempt from tax and P11D reporting, provided they would have been deductible if the employee had paid personally and the employer has a checking process. The exemption replaced the old “dispensation” regime in 2016.
What are the HMRC approved mileage rates? For cars and vans, 45p per mile for the first 10,000 miles in the tax year and 25p above. For motorcycles, 24p per mile. For bicycles, 20p per mile. Reimbursement at or below these rates is tax-free.
Do I need a written staff expenses policy? Not legally required, but strongly recommended once you have more than one or two employees claiming expenses. It supports tax compliance, cost control, and anti-bribery procedures under the Bribery Act 2010.
Can I reimburse staff for commuting? No. HMRC’s specific rule is that travel between home and a normal workplace is not deductible business expense. Reimbursement of commuting is taxable as a benefit in kind.
What is the £150-per-head staff entertainment exemption? An annual exemption of up to £150 per employee for staff parties or similar functions, provided the event is open to all staff and the cost per head (including VAT) is no more than £150. Exceeding £150 makes the entire amount (not just the excess) a benefit in kind.
Useful resources
HMRC — Expenses and benefits A to Z https://www.gov.uk/expenses-and-benefits-a-to-z
GOV.UK — Approved Mileage Allowance Payments https://www.gov.uk/government/publications/rates-and-allowances-travel-mileage-and-fuel-allowances
HMRC — Bribery Act 2010 guidance https://www.gov.uk/government/publications/bribery-act-2010-guidance