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Introduction to this document

Expenses clause

It’s useful to insert a short clause on expenses into employment contracts, particularly for those employees who are likely to incur them.

Expenses clause

Our Written Statement of Employment Particulars covers pay but is silent on expenses. If your staff incur and then claim back expenses, such as travel expenses, whilst carrying out their job duties, you might want to add an Expenses Clause into it. Our clause provides that you’ll reimburse to the employee all reasonable out-of-pocket expenses which are wholly, exclusively, necessarily and actually incurred by them in the performance of their job duties while they’re engaged on your lawful business. If you have an expenses policy, we suggest you also refer to that and so our clause is subject to our Reimbursement of Expenses Policy. That policy sets out more detail about the types of expenses that can be claimed, any financial limits and what the claims procedure is. Our clause is also subject to the employee producing such evidence of the incurred expenditure as you may require - again, you can set out further detail on evidence requirements in your policy. We’ve also optionally added that the expenses must have been authorised in advance, which would normally be by the line manager, but you can remove this wording if that’s not one of your requirements for expenses reimbursement.

Tax and legal position

If actual costs are reimbursed to the employee, the expense is exempt from tax, provided it’s fully tax deductible for the employee and the payment isn’t made pursuant to a salary sacrifice arrangement. The general rule is that expenses an employee is obliged to incur and that are incurred “wholly, exclusively and necessarily” in the performance of the duties of the employment are tax deductible for them, hence the reason for this wording in our clause. Do take tax advice though if you’re not sure about the tax treatment of specific expenses. Also, make sure you regularly audit your expenses policy and procedures to ensure they comply with the Bribery Act 2010, particularly in relation to expenses for the provision of corporate hospitality and business gifts.