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How to save money and increase resource … by doing nothing
Finance Directors are being increasingly asked to contribute to the growth and value creation of their companies. At the same time they are responsible for administering non-value added processes in an ever more onerous and complex tax and regulatory environment. For example, the latest changes in NI [April 2003] will increase the cost and complexity of managing Travel and Expense claims. Now might be a good time to look at ridding yourself of this burden, and saving money into the bargain … argues Ashley Whittaker, Founding Director of Travel and Expense service provider, GlobalExpense.
The lot of the finance director today is not an easy one. The job role that said you will spend your days participating in strategic planning and contributing to the successful growth of the company is rapidly turning into an aspiration instead of an everyday event. The reality in most finance departments is that many hours are wasted because staff are bogged down with mundane administrative burdens that cost the company money while delivering no value to the business. In many cases they may actually increase the risk of tax and VAT penalties, as it is difficult to keep staff knowledge and systems up to date with increasingly complex legislation.
Take the area of travel and expense claims - a necessary evil. Claims exhibit all states of incompleteness and gradations of honesty, but still the claimant will phone expecting payment yesterday! Typically 60% of the calls to the finance team relate to expense claims. The result is that staff are tied up managing people, their expectations and processes, rather than ensuring the company is getting value from the data inherent in what is typically the second largest discretionary spend. As the finance team becomes ever more reactive to paper mountains instead of proactive in business management, financial / tax reporting and control inevitably begins to suffer.
For example, take personal incidental expenses (PIE’s). These relate to those little incidentals that make life bearable when away on business, such as the mini bar, newspaper and telephone calls home. If an employee spends more than an average £5 a day in the UK (£10 abroad) on such necessities then he or she is liable to pay tax on the whole amount. However, few companies have the time or the systems in place to split out such expenditures in order to tax the employee. This leaves companies open to penalties from the taxman as well as settling the tax on behalf of the employee, all of which hits the bottom line.
Crucially, the lack of adequate systems robs employers of potential tax and VAT reclaims that could run into tens of thousands, whilst exposing them to unnecessary tax liabilities that might compound to hundreds of thousands. One in five UK businesses with a turnover of more than £1million may be sitting on a mountain of unpaid taxes, according to a recent survey by Continental Research. Some audits have revealed liabilities of up to £500,000. Moreover, many organisations struggle to find the time to audit their travel and expense procedures at all, or do so too infrequently to keep pace with changing tax rules.
The bad news gets worse thanks to the imminent published legislative changes next April and the increasing diligence of Government auditing agencies. The 1% increase in National Insurance contributions without limitation widens the tax net to include those highly paid employees most likely to accrue additional ad-hoc personal benefits causing an increase in the daily expense management workload. In the past the tax on such items was estimated and calculated as part of the lengthy year-end P11D processing. With the NI changes it is now essential to calculate the tax and NI on the basis of the employee pay period. It is questionable whether employers are in a position to deal with the administrative complexities this will entail.
It is tempting to dismiss such ideas as scare mongering. After all, employers are naturally loathed to accept that they may fall seriously foul of the taxman. However, times are changing. The Government has expanded its tax and VAT compliance efforts with the introduction of self-assessment by companies. The “bury your head in the sand” approach may still be judged by some as a worthwhile risk management strategy, but some radical thinking in the area of travel and expenses will present the FD with an opportunity to ensure they are running the business in a way that delivers most value and minimises cost.
The Finance Director sits at the heart of balancing business effectiveness with financial prudence. In the current climate companies need to ensure they are running their business in a way that minimises cost. The more forward thinking combine this with a constant search for ways of getting maximum value out of every investment they make, big and small. The ground breaking business process out-sourcing providers are now proving that the radical thinking in the area of travel and expenses offers an opportunity to achieve both these things, and presents an opportunity that should at least be considered.
The bottom line of many employers is being punished by the deployment of the costly staff being used to administer non-value add processes while the process and paper burden mean it is difficult to maintain compliance with legislation.
You could buy software to automate the process, but this can be an unwelcome capital expense. You will also incur software maintenance and staff training costs, and the system will still need to be configured by tax and VAT experts every time the Chancellor gets to his feet. This significantly reduces the overall return on investment and delays delivery of any benefits that may ensue. In addition, the finance team will still be plagued by receipts and expense claim queries and complaints from those demanding employees.
The most cost effective solution is to outsource the pain of such non-core administrative tasks to a third party service provider that has the tax and accounting knowledge and expertise to ensure your company’s continual compliance with increasingly complex legislation, both within and outside the UK. Crucially, from day one the administrative burden of the process transfers to someone else’s shoulders and your VAT reclaims are maximised, having both a direct effect on your bottom line and delivering immediate return on investment.
Such an approach is guaranteed not only to reap the rewards of savings hitherto hidden from view under a mountain of paperwork, but also means the finance team will be freed up to be more proactive in gathering data to enhance business decision-making, and so business management. Active management of tax policy could take the savings into hundreds of thousands of pounds - good news for the board and shareholders alike and a career-enhancing move for the finance director.
In short, get rid of processing travel and expense claims and free up the finance team to spend more time on core management, operational and financial reporting. This is the job role the FDs accepted, and the one they do best.
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