Expense codes

Creating an Expense Code

You must create an expense code for each item you need to record. Expense codes must be set up before you enter records for employees.

Expenses | Expense Codes | Expense Codes

If codes in this window already exist you can double click on them to edit, if the window is blank then you will need to click on the orange + icon to set up a new code.

In the first screen, enter an identifier for the expense code then click OK. The list of expense codes will sort by this identifier so some care and thought should be given as to how the list should appear - once the expense code has been set up this identifier cannot be amended

Please note that this identifier is case-sensitive – for example, HOTEL and Hotel would be two separate codes.

If you enter a code that already exists, you will see a warning:

Click OK and enter a different name for the code.

The expense codes can now be entered in the main screen:

The Description should contain a full name for the expense code, and the Expense type defines whether the code is a cash amount or a mileage-based expense. Options for the drop-down are:

  • General – used for cash payments or non-mileage-related unit expenses

  • Mileage – own car - allows the number of miles paid to an individual, who has used their own car for business, to be logged.

  • Mileage – company car - allows the number of miles paid to an individual, who has used a Company car for business, to be logged on the Company car record as “Actual Business Miles”

IRIS Payrite gives the option to allocate the miles to the relevant registration number when the expense is being entered.

  • Mileage – hired car - allows the number of miles paid to an individual, who has used a hire car for business, to be logged.

  • Mileage – private use contr. – the amounts deducted from an individual are logged against the Company car record as an annual contribution towards private mileage. Mileage rates must ALWAYS be set up as negative amounts. IRIS Payrite allows the miles to be allocated to the relevant registration number when the expense is being entered. They must be non-reportable for P11D and no VAT should be calculated against it.

  • Mileage – essential user – essential users that may have a lump sum car allowance paid. Individuals are entitled to an adjustment for NI where the mileage rate paid is less than the current HMRC approved rates. Using this mileage type will post the NI credit to the IRIS Payrite “Taxed Component”

As none of the mileage options affect the P11D, you will be setting this value to General for all expense codes you create here.

If the code is unit-based, then you should check the appropriate box. Leaving this box blank will leave the code paid as a cash amount.

If you wish to specify a nominal code for the expense, click Change next to the Nominal Code field and enter the nominal code mask for the code. The nominal code entry is the same as it is in System Setup.

The P11D Section and P11D Description define how the expense is to appear if it is a benefit expense code.

The P11D section is the analysis code to summarise expense entries for P11D reporting purposes. More than one expense code can go to the same P11D section, which allows for finer analysis of expenses for internal use – for example, hotels, subsistence and fares may all be coded to N1-Travel and Subsistence for P11D purposes, but the cost of hotels could be analysed separately.

If you choose one of the expense sections (N1-N6) for the P11D section, the Dispensation box becomes available. Enter a tick here if the company has a current, valid dispensation from HMRC for the expense.

For some P11D sections – usually where the section can cover more than one item - the description is available. Use this drop-down list to pick the correct description for the code.

You can select how the expense code will be paid using the How is this code to be paid drop-down list:

  • 0 – Not paid out – an amount not to be paid out; usually used for P11D reporting

  • 1 – Manual payment – where payments are made outside of IRIS Payrite in a separate expense run

  • 2 – Through IRIS Payrite – where payments are made through IRIS Payrite components as part of a normal pay run.

  • 3 – Expenses payrun – where payments are made directly by BACS as a separate expense pay run.

  • 4 – BIK taxed through IRIS Payrite – use for Payrolling Benefits in Kind (full details of this option can be found in the P11D and BIKs training guide)

If you have chosen to pay the expense code through IRIS Payrite, you shoud select the component to be used to pay it from the IRIS Payrite Component field. This is a drop-down list containing all components on your system.

The Taxed Component is available in the following circumstances:

  • The expense code is to be paid as a BIK through the payroll

  • The expense code is one of the mileage expense types

  • The P11D section allows for a taxed element to be entered

Select the component that you want to use to hold the taxable pay for the expense code (if any).

Lump sum component is only activated if the expense type is Mileage-essential user and the expense is paid out Through IRIS Payrite. Enter the component you wish to use to pay the lump sum payment.

The Default VAT type allows a default VAT type for each expense code to be set up to avoid having to enter the VAT type every time an expense entry is created or amended. The VAT will default to the type set although you can select a different type when individual expense records are entered. Select from the following options:

  • E – Exempt

  • S – Standard

  • Z – Zero

If you are not setting up a unit-based expense code, you can click OK to save at this point and need not continue with the guide.

If the expense code is unit-based, additional information needs to be completed; fields activated or displayed will depend upon the settings selected.

Click on the Units and Mileage information tab

Enter the Name of unit to be used for the expense code – for example, a mileage expense code would have a unit named ‘Miles’.

The Number of decimals for unit defines the maximum number of decimal places used for the units when entering expense records – if you only allow whole units to be claimed, this would be set to 0; if you allow half units it would be 1 (to allow increments of 0.5) whereas if you allow quarter units this would be set to 2 (allowing increments of 0.25)

If the expense code has two rates of payments – like the approved HMRC mileage rates, for example – then you should check the Are there two rates box.

Allowing two rates makes available a new field, entitled Check method for rate 1.

This option determines how the rate per unit is to be checked for codes with two rates and works in conjunction with the Limit at rate 1 field. You can select:

  • 0 – Manual - manual checking is required to determine the rate

  • 1 – By Month - the rate is checked against a monthly limit

  • 2 – By tax year - the rate is checked against a limit for the tax year

If you select By Month or By tax year, a field will be available underneath entitled Limit at rate 1. This holds the value at which rate one ends and rate two begins. If the check is By Month enter a monthly limit, if the check is by tax year enter an annual limit. IRIS Payrite will automatically limit rate one when this figure is reached.

If you are creating an expense code for HMRC’s approved mileage rate (AMR) then this field would be set to 10000 and the check method would be By Tax Year

Below these fields are the rates themselves. Please note that these rates are entered in pence, so a value of £0.45 would be entered as 45

Enter the first rate the Company pays the expense at in pence, this has a precision of four decimal places. The rate will default to this value when entering a new expense entry on this code; the rate can be changed when entering an expense.

The first extra rate gives the number of pence added to the first rate for each "extra" quantity (for example, each extra person traveling in a car). This rate cannot be changed when entering an expense.

The Second-rate fields are only available when the Are there two rates option is ticked. They work in the same way as the first rates, with the ability to change only the second rate in when entering expenses.

If the check method is set to by tax year or By Month, then the second rates will only apply once the Limit at rate 1 is reached

If you are creating an expense code for HMRC’s approved mileage rate (AMR) then the first rate would be set to 45.0000 and the second rate would be set at 25.0000. Both extra rates should be 5.0000.

MARORS Treatment

This is applicable where employers reimburse individuals for the use of individual’s own vehicle for business purposes at a rate that is less than HMRC approved rates (currently 45p for the first 10,000 miles and 25p thereafter). There is no statutory requirement for employers to report these negative amounts and they must not be reported on the individual’s P11D.

Employers may make a return under a voluntary arrangement called Mileage Allowance Relief Optional Reporting Scheme (MARORS). The negative amount represents the difference between the amount that could have been paid tax free and the lesser amount paid by the employer.

Check the box if the expense code applies for MARORS treatment. If this field is checked the expense records will report separately to HMRC via Internet Filing.

FPCS/TEP treatment is no longer relevant under current regulations; the field has been left within IRIS Payrite for historical compatibility. Click OK to save the new code.

If you have expense codes that are flagged to be paid through IRIS Payrite or as BIKs through payroll, you will see a further screen when you exit the expense code screen.

This controls whether you allow direct entry in the payrun on components allocated to the expense codes. If you wish to disallow payrun entry on these codes, check the box next to each component you wish to limit.

Only components allocated to expense codes will be listed in this section. Click OK to exit.