How expense reports work in a company

Expense reports let employees and executives get reimbursed for business expenses they advance on behalf of the company.

What is an expense report?

The expense report, drawn up on paper or in digital form, lets a company’s staff obtain reimbursement for expenses incurred in the course of their work. Accompanied by supporting receipts for expense reports based on actual costs, they are submitted to the accounting department. Reimbursement can also be based on a flat allowance. Their payment is independent of the monthly salary.

What expense reports can cover

Expense reports can be drawn up for a wide range of expenses:

• meals;
• accommodation for travel away from base: seminars, client or supplier meetings, branch visits, training, etc.;
• internet subscription for remote work;
• subscription to a software service;
• public transport: train, plane, subway, etc.;
• mileage allowance if the employee or executive uses their personal vehicle;
• tolls;
• parking;
• purchase of a phone;
• phone plan;
• purchases of supplies, etc.

Expense reports can cover recurring costs, but also a one-off expense. An employee who is relocated, for example, may request reimbursement of their moving costs.

An employee cannot arbitrarily decide which expenses are eligible for reimbursement. They must be defined in advance between the employer and the employee. If not set by an industry agreement or a collective bargaining agreement, this is detailed in a specific clause in the employment contract.

Once expense reports are drawn up, they must be approved by a manager. This may be the accounting department or management itself. Their amount must comply with the company’s tax rules and internal spending policy.

Flat-rate versus actual-cost expense reports

The company must choose which reimbursement method to apply: a flat allowance or actual costs.

The flat-rate allowance

Reimbursing expenses through a flat-rate allowance has the advantage of simplifying the process. The employee does not need to keep receipts, and the accounting team saves time by not having to enter them into the invoicing software. However, the recipient — employee or executive — must still be able to justify the business nature of their expense reports in the event of an audit.

Generally, the total amount of expenses is capped by the company based on the scales and annual rates published by URSSAF (the French social security contributions body). If the flat allowance exceeds these limits, the excess must be declared as a benefit in kind. As a result, the excess amounts are subject to employer social contributions and to income tax for the employee who receives them.

Conversely, if the company sets a flat allowance below URSSAF’s figures, employees who feel disadvantaged can file a claim with the labor court (conseil de prud’hommes).

The flat rate is practical for employees who accumulate a large number of expenses, such as traveling sales reps. Constantly on the road, the company can, for example, set a flat allowance for lunch. Whether the sales rep spends the amount or not, they will receive it. If they exceed the allotted amount, they are not reimbursed for the difference.

Reimbursement of actual expenses

Reimbursement of actual expenses means reimbursing each expense down to the last cent. This requires providing receipts for every amount on the expense report included in the accounting entry.

Entering expense reports, as well as uploading the related receipts, must be supported by your accounting software.

URSSAF’s oversight of expense reports

Expense reports are subject to very close scrutiny by URSSAF, which is wary of abuse and of expenses that might not be legitimate. If found improper, expenses can be reclassified as a benefit in kind. The company can then be subject to a reassessment, as can the employee, since these benefits must be declared as part of their income tax.

URSSAF also checks the eligibility of the person receiving the expense reports. They are indeed reserved for company employees. This includes salaried executives, but not others, namely:

• chairmen and CEOs of an SA (public limited company);
• minority managers of an SARL (private limited company);
• executives under the self-employed (TNS – Travailleurs Non-Salariés) regime;
• majority managers of an SARL;
• executives of an SAS (simplified joint-stock company), including the chairman.

The obligation to provide supporting documents

Every business expense must be justified by an invoice or a receipt. The accounting department must block any reimbursement if supporting documents are missing. Here again, if the employee does not comply with the law, URSSAF can reclassify these expenses as a benefit in kind. The agency may also call the company’s entire accounting into question, since the figures recorded in the general ledger would be inaccurate.

If an employee forgot to ask for a receipt or has lost it, they must request a duplicate from the establishment concerned. The accounting team can also offer to have them sign a sworn statement about the lost receipt. Be careful not to draw URSSAF’s attention if the number of “lost” receipts is too high, as fraud may then be suspected.

Supporting documents for expense reports must be kept for 10 years, whether on paper or in digital form.

How an expense report should be presented

If the allowance is not a flat rate, the expense report can be presented on paper (handwritten or typed and printed) or in digital form. There is no standard template, but it must include the following information:

• purpose of the expense;
• date;
• amount excluding tax;
• VAT amount;
• amount including tax.

Recording the expense report in accounting software

The employee must submit their expense reports within

On the employee’s side, they must produce their expense reports within a reasonable period, generally defined and communicated by the employer. Case law, moreover, states in a 2009 ruling that this deadline is essential to respect (Cass. soc. 29 sept. 2009, n° 07-45722). If the employee has one month, for example, the employer would no longer be obligated to make any reimbursement in the event of late submission.

On the employer’s side, they are obligated to reimburse justified business expenses that comply with their internal policy. If they refuse to do so, the employee can bring the matter before the labor court (Conseil des prud’hommes).

Finally, from a tax standpoint, business expenses are exempt from social contributions under certain conditions, and the amount received is not subject to income tax for employees.

As simple as the expense report process may seem (one expense corresponds to one reimbursement), it is in fact a multifaceted topic that touches many functions within the company. Human resources, legal, finance and accounting, labor law, internal communications, management… everyone is involved in organizing and managing expense reports.

Expense advances: a method for limiting expense reports

Some business trips can be costly for employees. Add up transport, accommodation, meals and all on-site expenses, and the impact on an employee’s personal cash flow can be significant. Not to mention that in organizations where expense reports are not optimized, the employer can take many weeks before processing reimbursement.

An expense advance is a method that involves advancing a sum of money to an employee before they leave on a trip. Unlike a standard reimbursement, this advance is estimated based on anticipated projected expenses. When the employee returns, they submit their expense reports for reimbursement, and the total amount will be adjusted against the advance granted. If the advance is insufficient, they will be reimbursed the difference. Conversely, they will have to repay any overpayment if the advance was excessive. The cost of the trip is then calculated solely based on invoices and receipts compliant with current regulations.

2021 study: Expense report fraud

According to an SAP Concur survey, only 1 in 3 employees would never commit fraud.

Expense report fraud: how to avoid it?

Fraud and expense reports

For an expense report to be valid, it must fall within a business context. However, this does not stop ill-intentioned employees from attempting fraud by requesting reimbursement for expenses they never paid. Indeed, it is hard to avoid the topic of fraud when discussing expense reports. While it is generally very limited with a suitable platform, it can occur in organizations with limited control procedures or more traditional internal processes. Yet the main techniques used by fraudsters are well known:

Requesting reimbursement for a meal that was not paid for

• Fraudsters’ trick: simply obtain a copy of the receipt for a meal the employee was invited to by a client or supplier. They can then get reimbursed as if they had been the one paying. Once you end up with a receipt for 3 or 4 people, the amount can quickly add up.
• The solution: to counter this practice, it is important to have average figures broken down by department or employee in order to identify potential biases during financial analysis. It is also possible to contact the client directly to verify their presence and that they were indeed invited. Some companies can also run random checks and verifications.

Altering a taxi receipt from abroad

• Fraudsters’ trick: it is generally difficult to decipher handwritten receipts or those written in non-Latin alphabets, not to mention blank receipts that employees fill in themselves. Result: an employee can double or triple their taxi expenses, especially during a trip abroad.
• The solution: to limit this type of fraud, it is best to equip employees with corporate or prepaid bank cards, or to use global ride-hailing services such as Uber.

Adjusting mileage expenses

• Fraudsters’ trick: a few extra kilometers here and there on a business trip made with a personal car, and by the end of the year, a significant budget has leaked out of the company through fraudulent reimbursements.
• The solution: expense management apps let you use the smartphone’s GPS to track mileage actually driven. This way, there is never any dispute.

What VAT applies to expense reports?

All companies can reclaim the VAT on expense reports. But this requires knowing precise tax and administrative rules. Indeed, depending on the type of expense, not all expense reports are eligible for VAT recovery:

• Mileage expenses: when the employer reimburses an employee for using their personal vehicle for business purposes, the amount paid to the employee includes no tax. It is therefore logically not possible to reclaim VAT.
• Vehicle rental: VAT is not recoverable on passenger cars, but it is recoverable on utility vehicles (trucks and vans) intended for transporting goods and materials.
• Fuel: it all depends on the vehicle (utility or passenger) and the type of fuel. For example, VAT is 100% recoverable on diesel for a utility vehicle.
• Toll fees: whether for a highway, bridge or tunnel, toll fees include VAT that can be reclaimed.
• Parking fees: here too, all parking (meters, underground and surface lots) is eligible for VAT recovery.
• Passenger transport: no VAT is deductible, regardless of the mode of transport (bus, subway, tram, motorbike, taxi, or even train, boat or plane).

What to do when an expense report is submitted without an invoice?

On paper, the rule is clear: an invoice (or a receipt or proof of payment) is required to proceed with reimbursement of the expense report and to reclaim all or part of the VAT paid. Reimbursing an expense report without a receipt is a risk for the employer, as they may face penalties in the event of an audit. This is why the vast majority of companies have a zero-tolerance policy that is clearly explained and detailed in their internal policy.

Other companies, smaller, more family-run or less procedural, occasionally accept an exception. Generally, the employee’s profile, history, behavior and the amount of the expense report can help determine whether to cross that line and try to find an acceptable solution, such as:

• Requesting a duplicate from the supplier.
• Providing a copy of the bank statement in case of payment by card.
• Making a sworn statement.

As simple as the expense report process may seem (one expense corresponds to one reimbursement), it is in fact a multifaceted topic that touches many functions within the company. Human resources, legal, finance and accounting, labor law, internal communications, management… everyone is involved in organizing and managing expense reports. Choosing the right tool helps optimize internal processes, secure cash flow, bring more flexibility to operational management, and contribute to your organization’s digital transformation. Turning expense reports into a performance lever… something worth (re)motivating your CFO about.