One of the biggest failures of small businesses is not claiming the full amount of VAT they’re entitled to. Sloppy management of expenses in this area alone means they’re failing to claim for a quarter of all potential VAT refunds, at a combined annual cost of nearly £1.2bn.
“It’s becoming increasing obvious that British businesses simply aren’t coping with the stress and cost of dealing with their growing pile of expense paperwork,” said Adam O’Kane, co-founder of ExpenseMagic. “It’s an area that’s become a corporate ‘black hole’, where billions of pounds of money that should be in company bank accounts is instead disappearing to the government.”
The standard of expense management by SMEs is so poor that:
- 40% aren’t confident their expense records are accurate enough to allow them to claim all the tax deductions
- 40% don’t know the size of the monthly expenditure bill
- one third don’t know how much their employees claim in expenses every month
- for many small businesses, the time spent managing expenses (13 day per annum, on average) exceeds that spent generating new business or investing in new markets
Even SMEs who retain an accountant to manage the process could still miss out on identifying patterns in expense claims which could help streamline processes or identify potential cost inefficiencies.
“The problem is that companies are putting the issue of processing expenses into the ‘too hard’ basket,” said Adam O’Kane.
“Sticking to a system where employees submit a random series of faded and stained paper copies of their expenses claims isn’t only grossly inefficient. It allows many thousands of pounds of legitimate refunds – and in particular VAT refunds – to slip through a small company’s fingers every year.
“Companies need to establish a digital process – one that works hand in hand with HMRC’s little-known policy of allowing the electronic storage of invoices and receipts.”
In summary, HMRC is happy to accept digital copies of receipts as long as:
– the authenticity and integrity of the documents can be guaranteed
– the stored document is in a readable format
– the digital copy is safely stored for six years
“A digital system to process expenses isn’t complex or expensive,” said Adam O’Kane. “It can be established simply by the click of a camera.