Reimbursing employee expenses: approve the claim before the bank payment

An employee expense reimbursement should connect three things: a genuine business cost, an approved expense claim and a traceable payment from the business. Paying first and trying to collect receipts later weakens both tax evidence and fraud control.

Start with the business purpose, amount and supporting evidence

HMRC's July 2026 VAT compliance guidance describes a normal employee-expense process as the employee incurring a business cost, retaining a physical or digital receipt, creating an expense report, obtaining manager approval and then posting and paying the claim. That sequence is useful even where VAT recovery is not the main issue.

The claim should say what was bought, when, for which business purpose and which project or cost centre should bear the cost. A card receipt showing £186 at a hotel is not enough by itself if nobody can tell whether the stay was for a customer visit, private weekend or cancelled trip.

The employee should not approve their own expense claim

GOV.UK says employers using exempt benchmark or bespoke expense rates must have a system to check payments and employees cannot check their own expenses. The same segregation principle is useful for actual-cost reimbursement: the claimant should not be the only person deciding whether the payment is valid.

Use line-manager approval for ordinary expenses and a second level for unusually large or sensitive claims. A £14 taxi can be treated differently from a £3,000 overseas hotel claim, but both need an identifiable approver. For directors, use another director, finance lead or another governance control where practical.

Actual business costs and approved scale-rate payments can qualify for exemptions

GOV.UK says certain business expenses such as qualifying business travel, phone bills, business entertainment, uniforms and tools can fall within expense exemptions where the relevant conditions are met. An employer can reimburse actual costs or use approved benchmark or bespoke rates in applicable cases.

Do not assume every reimbursement is automatically tax-free because an employee calls it an expense. Taxable benefits and payments may need payroll or end-of-year reporting. Where a claim does not clearly fall within the exemption rules, payroll and finance should agree the tax treatment before the payment is coded as a normal expense reimbursement.

For 2026 to 2027, the approved own-car rate is 55p for the first 10,000 business miles

HMRC's August 2026 Employer Bulletin confirms that the approved mileage allowance payment rate for employees using their own cars or goods vehicles increased to 55p per business mile for the first 10,000 miles, with 25p thereafter. The new first-band rate is backdated to 6 April 2026. The motorcycle rate is 24p and bicycle rate 20p.

Keep a mileage log showing the business journey rather than paying a round monthly allowance with no evidence. HMRC's employer guidance says records are still required even where payments are within the approved mileage rates. The employer should be able to show why the journey was business travel and how the reimbursed mileage was calculated.

Pay approved claims using named employee records and clear bank references

Once approved, post the expense to the correct ledger category and reimburse the employee through payroll or a separate bank payment according to the company's process. Use a reference such as EXP OCT26 or the expense-claim number so the bank line can be matched to the claim.

Avoid paying expenses from petty cash or ad hoc director transfers where a normal bank workflow is available. If the employee claims £742.60, the approved claim, ledger entry and bank transfer should all show the same amount. Differences should be explained rather than written off as rounding or "miscellaneous".

Keep expense and benefit evidence for at least the HMRC record-keeping period

GOV.UK says employers must keep records of employee expenses and benefits, including the date and details of each item and any employee contribution. These records must generally be retained for three years from the end of the tax year they relate to.

Store the claim, receipt, approval and payment reference together electronically where possible. That makes it easier to answer an HMRC query and to detect duplicate claims internally. A bank statement on its own only shows that the employee received money; it does not prove which cost was reimbursed or whether the tax treatment was correct.

Run a periodic duplicate-claim check as well. The same hotel receipt can be claimed once through an expense platform and again through email, or a company-card purchase can accidentally be reimbursed as if the employee paid personally. Matching claimant, date, supplier and amount before payment can catch those errors before money leaves the account.

For larger employers, track rejected and adjusted claims by reason. Repeated missing receipts, personal spend or late submissions can indicate a training or control problem rather than isolated mistakes. Expense data should therefore feed back into card limits, travel policy and manager approval rules instead of being treated only as bookkeeping.