Why does the employee need to obtain a receipt?
It is necessary to obtain receipts whenever possible in order to satisfy the local tax authority that expenditure is business related. Otherwise there is no proof that the reimbursement is not a taxable ex-gratia payment.
Does it need to be a VAT receipt?
Yes, if you wish to recover the VAT. Most VAT cannot be recovered in any jurisdiction unless the employee has obtained a valid VAT receipt. However, what constitutes a valid VAT receipt varies from territory to territory – and not all expense related VAT may be recovered even with a valid receipt. Your expense management system needs to clearly inform users what constitutes a valid VAT receipt in the country of expenditure. Visibility of receipts is helpful for approvers and administrators, but this cannot be relied upon to determine the tax treatment for any given item, especially across multiple territories.
Is it always necessary to keep the paper receipts?
Not always. Most tax jurisdictions no longer require that paper receipts are retained – so long as there is a clear and legible image, securely held.
Is it necessary to provide a paper receipt to recover cross-border VAT?
No longer always true: The paper receipt must be kept and may be called for in the event of a query, but in most jurisdictions it is not required when making a VAT reclaim. Within the EU it is necessary to provide an image of the receipt for high value items – but the amount varies between jurisdictions.
Will physically checking receipts enable allocation of account codes, guarantee correct tax treatment and identify recoverable VAT?
No. Correct allocation of account codes and tax compliance is determined by a combination of expense type and ‘purpose’ and often governed by locally applied thresholds. The purpose of the expenditure is not recorded on the receipt. It must be established by interaction with the claimant at point of entry, with thresholds automatically applied.
Should Approvers view every receipt?
This is very much defined by practice and culture, and depends principally on the requirement placed on the approver. Management Approvers are not usually aware of accounting or tax requirements, and are often not up-to-date with business policy. They are commonly more concerned with the business justification for the expenditure and its effect on budget. If the data collected at point of entry is sufficiently detailed and clear, then the approver should everything required to approve the claim.
Finance Approvers and processing staff usually have a different perspective. They require sufficient information to ascertain that coding is correct and that the tax treatment is appropriate to the purpose of the expenditure. The receipt is important for this, but does not always provide all the information required.
What is the argument for providing electronic images of receipts?
It is clear that if the receipt were present on screen, then the approving manager(s) would have the option to view it and administrators would be relieved of the necessity to sort through, and then store, the physical documents.