Expences – Getting it right.

In light of the taxation issues, the most prevalent method in respect of payment of employee expenses is by the re-imbursement of vouched expenses i.e. repayment to the employee of expences actually incurred for which they have appropriate receipts for. When such payments are made to the employee and the payment is no more than reimbursement of a receipted expense, it is not treated as pay for tax purposes.
Other methods of dealing with employee expenses include:-

Flat rate employment expenses.

A standard flat rate expenses deduction is set for various classes of employee’s. The amount of the deduction is agreed between Revenue and representatives of groups or classes of employees in advance (usually the employees are represented by trade union officials). Such groups of employees that are entitled to this flat rate expense include nurses, teachers, firemen, journalists, certain professions/trades employed by the civil service and local authorities, shop assistants to name a few. A detailed list is available on the revenue website.
Round Sum expenses.

This is where the employer agrees to pay an employee an agreed amount each pay period in addition to normal salary to cover expenses. The expense amount agreed is treated as “Pay” and is taxable in the same way as if it were part of the normal salary payment.
Meal allowances: In the same way as agreed flat rate expenses, where employers pay a sum towards the costs of employee’s meals, it is treated as taxable pay.

Meal Vouchers.

Where an employer provides luncheon or meal vouchers to employees, the value of the voucher (excluding the first 19 c per voucher) must be treated as pay and appropriate PAYE/PRSI deducted in the normal manner.

Canteen Meals.

Where an employer provides free or subsidised meals in a staff canteen for staff generally, the value of the meals provided to employees are not treated as pay for tax purposes. However, the facility must be available to all employees in the company. If the facility is only available for certain employees, then the exemption will not apply and tax will need to be deducted on the value of the meals to the employees entitled to the facility.

Can I claim for my lunch expense?

We are all familiar with the expenses that we are allowed to claim a tax deduction for in our accounts. They typically include items like rent, insurances, print and advertising costs, wages and salaries, to name but a few.  However, there are items that often cause much debate as to whether they are tax deductible or not. The main culprits I have found that can cause confusion are food and meal expenses and entitlement to claim mileage and subsistence allowances.

For self employed individuals, the rules relating to food and meals are actually quite clear – the cost of meals taken at the place of business are not allowable for tax purposes. Meals consumed away from the place of business are, in general, not regarded as being for the purposes of the business. This may seem a bit unfair – after all we’re not necessarily talking about expensive lunches in fine dining establishments on a daily basis. Who has the time, budget and metabolism for that anyhow? Most of us are more likely to opt for a quick take away sandwich from the shop/cafe closest the office, so why is it not a business expense? Well, Revenue’s view point on food and meals is that everyone must eat in order to live, so whether you are working or not, you still have to eat. If you think about it, for anyone that is a PAYE employee, you have to pay for your own lunch/food costs and cannot claim any tax credit/relief for having to do so, so why as self employed individual would this same cost now be regarded as a business expense? The Revenue do recognise that obviously, where the fundamental nature of a business involves travelling  – an example they give is that of a long distance lorry driver, or where occasional business journeys outside the normal pattern are made, then the cost of meals maybe allowed as an expense.

 So, what about civil service mileage rates and subsistence allowances? Well that’s for the next blog post.

Getting paid on time.

All businesses are competing with suppliers for their customer’s money. The business with the best credit control system will get paid first. The groundwork for getting paid on time starts with the beginning of a new customer/client relationship. Every business needs to have a system in place for accessing a potential customer’s credit worthiness, whether it is a policy of requesting credit references, bank references or using publicly available information or credit bureaus.Once you are satisfied with the credit references, the next step is to ensure that there are written terms of business, which should include payment terms, provided to the customer. Do be aware though that for a contract to be legally enforceable it must contain certain elements and it is always wise to seek professional legal advice on this.

We all know that there are different categories of customers when it comes to collecting payment. In these difficult times, we all try our best to be reasonable and fair, particularly where in the past the customer has always been a good payer. The main thing is to ensure that as a business, you limit your potential exposure. The most difficult categories for all business to deal with are firstly, those that can pay some debts, but can’t pay it all and secondly, those that won’t don’t and never pay.

A good cash collection system should be flexible, reliable, secure, adaptable and economical. Most importantly, the system needs to be operated in a firm, but intentional manner. If a customer gives you a date for when payment will be made, if not received, a telephone call should be placed immediately. Information about the customer’s accounts department including their payment processing system should also be obtained as this can avoid delays in the issuing of payments.

When preparing to make a cash collection telephone call, it is important to make sure that you have all relevant information and be prepared with possible responses to the standard excuses such as “the cheques in the post”. You must remain firm and ensure that you finish the call with a definite answer.

Reducing cash collection time can also be helped with the use of electronic invoicing over traditional paper invoices. It can save time (not to mention costs) on the delivery of invoices and statements. Encourage electronic payments, standing orders and direct debits where appropriate. Accepting card payments and discounts for early payment can also encourage early payment.

Unfortunately, where telephone calls and reminders don’t work, things need to be ramped up a bit. Clear concise cash collection letters may ensure that the correct person is aware of the outstanding debt and result in settlement. Applying late interest payments may also speed up the collection. However, you need to decide the time that will be spent on something like this if you are aware that the inevitable result will be legal action.

  • Immediate steps that you can now take to improve cash collection include.
  • A review of your current terms of business/contracts.
  • Ensure that payment terms are clearly stated.  
  • If a written contract, make sure that there is an agreed reference to what interest will be payable on late payments 
  • Ensure system in place for monitoring agreed payment terms and unpaid debts
  • Enforce the credit control procedures firmly, but vigorously.

Remember, good communication and negotiation skills are absolutely necessary when collecting debts. Keep making the calls, square off any excuses and always make sure that you end each call with a firm commitment and follow up if required. A company needs to make sure that they are always “first in line” to ensure that what cash a customer has comes your way.

Protecting your business

Business owners, more than ever, need to have a proactive approach in managing their business. We need to be able to detect and identify warning signs of potential problems and know what steps to take as soon as problems become apparent. Problems rarely arise suddenly. It is more usually a gradual process, as a result of a variety of circumstances either external or internal. External causes cannot always be predicted with accuracy in advance. Internal factors however, may, in many cases be capable of being foreseen.
Businesses will usually have expert skills and experience in the area of activity the business operates.

No matter how good a product or service is, skills and experience in areas such as business planning, financial reporting, marketing, customer relations and financial management cannot be taken for granted.  Running a successful business requires not only good creative and operational skills but good business skills too. If these skills are not available in-house, then the business will need to source these skills from specialist advisors.
Advice from professionally qualified financial accountants should be sought regularly, at all the stages of business life. Some of the many benefits of this include being able to take advantage of any opportunities of growth and to anticipate any threats to the survival of the business and reacting to them promptly. The key areas that a professionally qualified accountant usually provide expert advice is in regards to accounting, financial planning and credit management. Advice in areas such as bookkeeping and financial reporting practices and sound business practice should also be utilised in order to produce high quality financial information, which sets the ground for the efficient and effective growth and the survival of the business.

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