Saving Costs With an Allowable Expenses Policy
A lunch with business partners, a night stop when on an assignment, public transport fare – despite all the digitalisation efforts, we are still accompanied by restaurant bills, parking and railway tickets, hotel invoices and other expense receipts in paper form. Indeed, in many places expenses are meanwhile recorded electronically; this has resolved only one part of the problem, however, because, as required by the Federal Tax Administration, original receipts have to be stored. Thus, expense reimbursement remains an error-prone process that costs a lot of work.
This process could be largely simplified, however, with an allowable expenses policy approved by tax authorities, which may release a company from its administrative burden. Above all, expenses recurrently incurred by employees, such as lunch meals of installers working in the field, would not any longer have to be itemised, verified by the Accounts and reported in the pay slip. This often requires a major administrative effort from the employer. On the other hand, the employee may expect audits and, at best, offsets from tax authorities. Employers can have their allowable expenses regulations in the form of separate policies approved by the local tax office to the following effects:
- In section 15, the pay slip is provided with the approval annotation: ‘Allowable expenses policy approved by the canton of X on (date)’.
- If an expense has really been refunded, its amount does not have to be specified in the pay slip.
- For tax purposes, reimbursements stipulated in the allowable expenses policy are deemed to replace allowable expenses.
- Approval from the employer’s local tax office also applies to other cantons.
- Employees do not have to report how reimbursements paid to them on a lump-sum basis have been used.
The possibility of negotiating lump-sum expenses is another reason why companies elect to file their allowable expenses policies with tax authorities for approval. If no approval is obtained, the affected employees may expect tax authorities to scrutinise, as part of a personal tax assessment, any lump-sum reimbursements they have received and see them applied against salary or wage components. Such setoffs can be avoided by having the company’s allowable expenses policy verified and approved as a whole by the local tax office in the canton where the company is domiciled.
For management and sales representatives who, as part of their duties, incur a lot of expenses related to customer representation and acquisition as well as management of customer relations, tax authorities recommend including a lump-sum reimbursement in the allowable expenses policy. Adopting such a policy is also reasonable because it is hard to gather evidence of representation and other out-of-pocket expenses. Therefore, tax authorities agree that, due to practical reasons, such persons are reimbursed on a lump-sum basis.
The amount of such an expense reimbursement depends on various factors, which include the amount of a person’s salary or wage, his or her representation responsibilities, the extent of his or her domestic and international travelling and the industry in which he or she operates. As an indicator, you can assume that the lump-sum expenses should not exceed 3.5-4.5% of the target salary or wage.
For tax authorities, allowable expenses policies are submitted for approval on a voluntary basis. Therefore, before approval is given, it is partially required that the employer employs at least ten eligible persons. In addition, it is partially required that at least one (the first) financial statement has already been filed.
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