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What are out of pocket expenses (and how should you manage them)?

While many of your business expenses will be paid via the company account, there are bound to be some expenses that you (or your employees) cover with your own money and later claim back. Paying for things ‘out of pocket’ like this is quick and convenient in the moment, but it does mean you need a sensible system to manage such expenses. Let’s explore what this means in practice.

What are out of pocket expenses?

In a nutshell, these are costs that you (or your employees) pay for yourself – as opposed to paying directly through the business – and are later reimbursed. Common examples include train tickets, taxi or Uber rides, parking fees, and so on. To be an allowable expense, these costs must be wholly and exclusively for business purposes.

Managing out of pocket expenses – the easy way

Out of pocket expenses are typically low, but they add up over time, and the last thing you want is a huge stack of receipts that need to be processed at the end of the year! That’s why you need a system in place to routinely record, process and store these expenses.

Here are a few easy solutions:

  • Record your out of pocket expenses as soon as possible, rather than letting them pile up. Thankfully, modern technology makes this easier than ever. For example, here at Jupp Castle we use a system called Dext Prepare, which lets our clients upload a picture of a receipt – then the relevant info is automatically fed into our accounting software, Xero. In other words, there’s no need for manual data entry.
  • If you do opt for manual data entry, set a weekly or monthly calendar reminder to process your expenses. For employees, you might want to set a monthly deadline by which they need to submit their own expenses.
  • Classify your expenses according to various categories, such as travel. Again, technology makes this easy, but if doing this manually, you can create a pre-determined list of categories to choose from. (As an aside, categorising expenses like this will help you analyse whether spending in certain areas is high.)
  • Make sure any out of pocket expenses are recorded separately from those paid through the business account. This is important for maintaining accurate banking records.
  • And finally, keep hold of your receipts – whether it’s a paper copy or an electronic copy in your accounting system.

At Jupp Castle, we make business expenses easy. Book a free chat to learn more.

At Jupp Castle, we offer accountancy, taxation and financial advisory services to a wide range of businesses and individuals. Our services cover everything from payroll to pension investments, personal tax returns to Charity Commission filing.

We pride ourselves in offering a personalised, friendly service that takes the jargon out of accountancy.
Whatever financial or accountancy service you are looking for, Jupp Castle has the right expertise for you.

All our accountants are professionally accredited with many years experience across a wide range of businesses and individuals.If you’d like to discuss any of your accountancy or financial needs, please give us a call on 01252 84868 or contact us through the online form.

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