Expenses policy: what a UK small business policy should cover (with a template)

An expenses policy is a short document that tells your staff what the business will pay back, up to how much, what proof they need, who approves it and when they get paid. HMRC sets the tax limits; your policy sets the rules inside them. A good one for a small UK business fits on two pages and covers six things: who it applies to, what is claimable, the rates and caps, receipts, approval, and deadlines.

It is not paperwork for its own sake. Pay back a genuine business cost, or a flat allowance at HMRC's benchmark rates, and it is tax-free with nothing to report. Pay more than the rules allow and the extra is earnings, taxed through payroll. The policy keeps you on the right side of that line without arguing about every sandwich.

Why the HMRC rules shape your policy

Since 6 April 2016, an employer that pays or reimburses an expense the employee could have claimed tax relief on themselves does not have to deduct tax or National Insurance or put it on a P11D. HMRC's manual is clear that you do not need to apply for this: you just need to be satisfied, when you pay, that the expense would be fully deductible.

That gives you two safe ways to pay:

• Actual costs. The employee spends the money, keeps the receipt, and you pay back exactly that.
• Flat rates. A fixed allowance at HMRC's benchmark rate, or at a bespoke rate HMRC has approved for your business.

Everything else, such as paying someone's commute or rounding a claim up, is taxable. GOV.UK says that if you reimburse more than the necessary costs of business travel, the extra amount counts as earnings.

What an expenses policy should cover

The rates to build in

These are the published HMRC figures employers can pay tax-free. You can pay less; paying more without HMRC's agreement makes the excess taxable.

A few traps the table cannot show:

• Meal allowances need a qualifying journey. The travel must be part of the job or to a temporary workplace, not substantially ordinary commuting, and the employee must have bought a meal after setting off. A flat £5 to everyone in the office every day is just pay.
• The overnight limit is all or nothing. If you pay more than £5 or £10 a night, the whole payment becomes taxable, not just the excess.
• Company cars use different rates. If the employee drives a company car, mileage is repaid at HMRC's advisory fuel rates, which HMRC reviews every quarter (1 March, 1 June, 1 September and 1 December). Our guide to advisory fuel rates for company cars has the current table.
• Paying under 55p is allowed. The employee can then claim Mileage Allowance Relief on the difference, usually on a P87. Paying over 55p makes the excess taxable.

The full mileage picture is in HMRC mileage rates for 2026/27.

Travel: say where the line is

Most expense arguments start with someone driving somewhere. GOV.UK counts all non-business travel as private, including the journey between home and a permanent workplace. Say that plainly, then say what does count: client visits, trips between sites, and travel to a temporary workplace. For trades, HMRC's 24-month rule decides when a site stops being temporary; link it rather than paraphrase it. For mileage, ask for a log with the date, start, finish, reason and business miles, as set out in our guide to HMRC mileage log requirements.

Receipts and records

GOV.UK tells employers to ask staff to keep proof of their expenses, such as receipts or bills, in case you need to check them. You must keep a record of every expense and benefit you provide for 3 years from the end of the tax year it relates to. Your company's own accounting records have a longer clock; see how long to keep receipts. If you are VAT-registered, ask staff for a valid VAT receipt so you can reclaim the VAT. And decide now what happens when a receipt is lost, for example a short signed note of what was bought, when and why, so everyone gets the same answer.

Approval: nobody checks their own

This is where small firms get casual. GOV.UK's employer guide says you must have a system to check payments made at benchmark or bespoke rates, and that employees cannot check their own expenses. For bespoke rates, HMRC's manual expects someone other than the claimant to confirm the claim is for qualifying travel, has no disallowed items and is not excessive. In practice:

• name who approves claims for each person, and who approves the approver's claims
• say that the owner or director's claims go to a co-director, a manager or your accountant
• state what approvers check: business reason, receipt, rate, and no duplicates

An expenses policy template you can copy

Swap in your own figures and names.

[Business name] expenses policy

1. Who this covers. All employees and directors claiming business costs.

2. The rule. We pay back reasonable costs you incur only because of your work for us. We do not pay for travel between home and your normal workplace, fines, or anything personal.

3. Mileage. Own car or van: [55p] a mile for the first 10,000 business miles in the tax year, then 25p. Company car: HMRC's advisory fuel rate for the car. Every trip needs a date, start, finish, reason and miles.

4. Meals when travelling. Actual cost with a receipt, up to [£5 / £10 / £25] for journeys of 5, 10 or 15+ hours, or our flat allowance at those rates. Alcohol is not covered.

5. Hotels. Book through [name], up to [£X] a night outside London and [£Y] in London. Incidental costs up to £5 a night in the UK.

6. Receipts. Keep a receipt for every cost. VAT receipts where the supplier is VAT-registered. No receipt: a signed note, and claims without proof may be refused.

7. Approval. Send claims to [manager]. [Director]'s claims go to [co-director or accountant]. Nobody approves their own claim.

8. Deadlines. Claim monthly, within [30] days of the cost. Approved claims are paid with the next payroll.

9. Company cards. For business costs only. Hand in the receipt for every card payment.

10. Questions. Ask [name] before you spend, not after.

Frequently asked questions

What should an expenses policy include?

Who it covers, what is and is not claimable, your rates and caps, receipt rules, who approves claims, how often to claim and when you pay.

Do I need HMRC's permission to pay benchmark rates?

No. You only apply to HMRC if you want to pay bespoke rates, with evidence that they match what your staff actually spend.

Can an employer pay more than 55p a mile?

Yes, but the amount above HMRC's rate is taxable and reported on a P11D or put through payroll.

How long must an employer keep expense records?

GOV.UK says 3 years from the end of the tax year they relate to, for expenses and benefits records.

Can a director approve their own expenses?

Your policy should say no. GOV.UK says employees cannot check their own expenses, so send a director's claims to someone else.

Where ClaimSnappy fits

A policy only works if the claims that arrive follow it. On a ClaimSnappy business desk, staff snap receipts or log trips in the app, and every trip needs a reason before it can be saved. A manager sets the desk's mileage rate, and can change it per person. Each receipt gets a category, with client and staff entertaining kept apart, and company card spend goes on the claim as evidence without adding to what the person is paid back.

Claimants build the claim and send it. With approval switched on it goes to a manager first, and you can name a first approver for some people; managers approve, or send it back with a note saying what to fix. Before anything goes, checks ask about things like fuel and mileage on the same day, or lines HMRC would query. Your accountant can join free in the accountant portal and make import files for Xero, QuickBooks Online or Sage 50 there.

A business desk starts with a 30-day trial, no card needed, then Team is £25 a month with six people included. See how it works for teams, or compare plans.

ClaimSnappy keeps the records; it does not decide what HMRC will allow. If a rate or a claim is borderline, ask your accountant before you pay it.