In this article:
- Which business travel expenses are tax-deductible
- Tools you can use to streamline and automate your travel expense management
- Top travel expense management apps of 2019
- Why small businesses need a travel expense policy and how to write one
Travel expenses can be one of the largest costs incurred by any business, big or small. That’s why having a policy in place to monitor the reporting and reimbursement of business travel expenses is vital – not only to keep costs to a minimum, but also to keep your employees and the business safe.
Why you need a business travel expense policy
When it comes to travel expense management, larger organisations have no choice but to implement a travel expense policy. Smaller businesses, on the other hand, might not feel like they need a formal policy – but here’s why it’s even more important to have one.
Put simply, expense management is risky. The cost of travel for a small business can be huge, and there are very few other business processes that rely on the accuracy – and honesty – of so many people. Because travel expenses are incurred away from the office, the only way to get a handle on spending and claiming is to have a policy that clearly outlines what is acceptable. Having a travel expense policy will also help you to avoid creating misaligned expectations and ill-will among valued staff members.
A travel expense policy also protects your business from travel expense fraud, a major contributing factor to the business loss of over US$2.7 trillion every year, according to one global report. Most employers trust their team, but it’s better to be safe than sorry.
Before creating a business travel expense policy, here are a few things you should consider:
Do you have a business travel policy?
There are lots of things to consider when planning and booking business travel.
You can create checklists and templates, save traveller information for future trips, take out business travel insurance, and book flights and hotels early.
But one of the best things you can do when planning business travel is to have an internal procedure for travel bookings, especially if your staff make their own bookings and reservations.
A good business travel policy will be unambiguous, with guidelines well set-out, detailing:
- How your staff can get pre-approval for travel (if required)
- The process they need to follow when booking flights and accommodation
- How they can keep costs down while travelling, and
- What they need to do to claim on expenses they might incur while away.
What reimbursement requests do you accept?
Unless you want to reimburse your staff for every bottle of water and packet of gum, you need to tell them what expenses they can and can’t be reimbursed for.
Best practice is to prep your travellers before they go.
- Petrol mileage – consider whether you’ll cover all work-related travel costs only, or a certain portion of total petrol costs.
- Entertainment – travellers who are away for an extended period may have access to a limited entertainment fund. What is classed as acceptable entertainment, and what is their spend limit?
- Room service – can your staff order from the room-service menu, make use of the mini-bar, charge expenses to their rooms?
- Client entertainment – if an employee is travelling to meet with a client, what funds do they have access to for client entertainment? Can they take clients out for lunch, and what is their spend limit?
- Food and beverages – will the business cover all food and beverage costs including alcohol, a certain number of meals per day, or impose a daily food budget?
Expense filing and the reimbursement process
This will depend on your travel policy, what expenses your employees can claim, and what expense system you have in place. You need to explain why it’s important they follow this procedure – so they can be reimbursed in a timely fashion, and the business can meet its audit requirements.
Questions you need to answer are:
- How should staff file their expenses, and what is your system for managing expenses?
- What documentation is required, e.g. bank statement or receipt?
- When can employees expect to be reimbursed? Will they receive the money in the next pay run, or separately?
- How soon must they claim on expenses?
How to create a business travel expenses policy
When you’re ready to create a business travel expenses policy, there are things you can do to ensure you write and implement a good one.
Your policy needs to help your business work towards reducing your overall travel costs. It needs to reflect your business travel needs, make sure your travellers are well looked after, and manage their expectations.
It doesn’t need to be super detailed, just enough to keep the cogs turning in the right direction – and make sure you review your travel policy often.
Here are a few things you should include in a basic travel policy:
- What destinations your employees can travel to
- How they can pay for their travel
- The pre-approval and approval process for travel and expenses
- What expenses they can claim
- Rules around booking flights, accommodation and transport
Once you’re created your policy, don’t forget to get feedback from the employees who will be using it, and communicate what the policy represents. It’s hard for travellers to adhere to a policy if they don’t know it exists, or what it means practically.
Tax-deductible business travel expenses
When putting together a business travel expense policy, you need to understand your tax requirements and what business travel expenses are tax deductible in New Zealand.
There are lots of travel expenses you can claim as business expenses – so long as they’re work-related. Often businesses will provide a travel allowance to cover accommodation, meals and other work-related, day-to-day expenses.
Generally, you can claim on flights, taxis or mileage, accommodation, meals and snacks while travelling, but there are certain restrictions.
If an employee’s travel for work requires an overnight stay, you can claim the cost of their accommodation. If they’re away for an extended period working on a project or on secondment, you might provide them with an accommodation allowance which is also generally tax-deductible for a certain amount of time.
Food and drink
Meals while travelling for business are 100% tax-deductible. These sorts of expenses are only 50% tax-deductible if you’re also hosting an existing or potential business contact. Celebration functions away from the office and team-building trips are also only 50% deductible.
Snacks and refreshments can also be claimed as business expenses if you’d normally provide your employee with these things at work.
Like meal expenses, entertainment expenses while travelling will either be 50% or 100% tax deductible depending on their purpose.
If the entertainment helps you to earn income in any way, it’s usually tax deductible. When travelling overseas, you can claim 100% of these expenses.
Mixing business and personal travel
Where things can get a little blurry is when you mix business and personal travel. This is why it’s super important that staff keep detailed records of expenses – especially if there’s a holiday tacked on before or after the business portion of the travel.
If you combine a business trip with a holiday, you must split-out your expenses and only claim the portion that relates to the working part of your trip. But if you’re away for business and have an incidental half-day free, you can claim all your travel expenses. New Zealand’s Ministry of Business, Innovation and Employment has some good guidelines around what expenses you can claim when business and personal travel are taken together.
Here are the types of records you need to keep in case IRD asks for them:
- All travel expense invoices, receipts and tickets
- Trip details: dates, reasons for the trip, your itinerary, transport, food and accommodation costs, time spent on business and personal activities (a travel diary is good)
- Details of business conducted: business cards for contacts you met, firms you visited, letters of introduction.
Travel expense management apps – the good ones
Managing your business travel is made really easy by modern-day technology. Expense management software has come a long way, and there are now options for all types of small business.
From a business perspective, a travel expense app is an investment. It can automate the entire expense management process, giving your business better financial reporting so you can stay within budget year-on-year.
Free apps are a good option if your business is small, and new to expense management software. It means you can trial different apps to see which one works best for your business, before investing in a paid version. Just be careful what constitutes ‘free’ – you don’t want to accidentally be upgraded without knowing.
Paid apps are the best option for well-established small businesses that travel for work often. When deciding on which expense management software to invest in, take note of the different features available.
Basic expense-tracking features are essential but if you’re going to pay for an app, you want something smarter. Look for an app that will easily integrate with your accounting software, has real-time cost insights, automated reconciliation of transactions and receipts, and optical character recognition on scanned receipts – so you can simply take a picture of a receipt instead of manually adding in transactions.
Expense management apps reviewed
Concur Expense is one of the most popular expense solutions in the world and for good reason. It integrates well with several accounting and finance management systems, and for a long time has led the charge of seamlessly capturing, approving and reporting on transaction data.
If you’re looking for a smart expense management tool, Serko Expenses is just that. Say goodbye to the monthly grind of claims and reconciliation – the solution provides ‘always on’ expense management, automated reconciliation of corporate card transactions and receipts, and AI receipt processing.
Get on top of your business travel expenses
Whether your business travels often or infrequently, getting on top of your business travel expenses with a solid policy is a must. A travel expense policy will help you save money, better manage your bookings and expenses in one place, as well as allow you to claim on tax-deductible expenses when your tax filing is due.
The most effective travel expense policy is simple, road-tested by your employees, and easily accessible to anyone in the business who needs it.
Sometimes this is easier said than done. If you need help with developing and implementing a new travel policy in your business, talk to a professional travel expert – and get flying in no time.