Real client enquiries - Payroll

Questions:

1. What are the items we can reimburse to employees as Expenses, and what are the items we should not?
2. Could you please list the non-reimbursable items? Should we treat them as taxable allowances, or should these not be considered at all?
3. We would like to explain to our Clients and employees in detail how the expense process should look like, meaning what, how and when needs to be provided to us to ensure compliance and give them clear guidance on what is expected from them so we can process the expense payments.
4. What information the receipt or invoice should include? Otherwise, we will not be able to process them.

Employee Payroll Reimbursements:

Payroll reimbursements are expenses paid by the employee on behalf of the company. As the word suggests these are expenses incurred by the employee for the benefits of the company and as such, they should be returned back to the employee.

These expenses do not constitute benefit in kind as the employee has not enjoyed any benefit; the benefit was enjoyed by the firm.

Standard Practise:

Employee payroll reimbursements; We commonly avoid including them in the payslips as part of the employee remuneration as their inclusion could cause enquiries by the Income Tax Office Examiner should the company (or remote employer) been investigated by the Cyprus Income Tax Office; a rare case. 

Typically such expenditure are reimbursed via a bank transfer by the employer to the employee who must hold valid supporting documentation such as invoices raised on the Company’s name. Having said this, companies like Go Global which operate from abroad require such treatment as it ads more transparency and clarity on overseas payroll and costing operations.

Overseas Clients Practise:

Some of our overseas clients include this reimbursements in the payslip especially when they do not have a Cyprus bank account. 

Preferred Policy:

Step 1

Personnel incurring the expenditure on behalf of the company uploads on a company folder the disbursements / expenses.

The documentation of these expenses / invoices should be issued on the Company name to the extend possible. 

Step 2

The Company approves them and includes them to the payroll processing for the month.

There are no social securities or any other payroll taxes deducted from these expenses as explained above they are disbursements and not benefits in kind.

Step 3

The service provider processes the payroll records and does not account for these payments as expenses but they are included on the payroll.

As such the employee receives at the month end the net salary and bonus if applicable + the disbursements amount in a single or two bank transactions.

Non Reimbursable Items:

Non reimbursable items are items which are not allowed by the Cyprus Income Tax Office as they are considered a benefit in kind. Strictly speaking if one employee enjoys a service or product discretionary; that other staff members can not enjoy, it is highly likely that it is a benefit in kind and should be included in the payslip on top of the salary and be taxed accordingly (social securities and pays tax). The amount of the benefit in simple cases is the total amount of the company expense but there are also more difficult cases where such expenses are calculated based on specific formulas and methodology given by the Cyprus Income Tax Office.

The Cyprus income tax office, similarly to other European tax offices, does not have a definitive list of allowable or non allowable benefits simply because the definition depends on the discretionary use of the employees and the usage. Nevertheless, some examples than can be given are the below:

Common Expenses that are not reimbursable:

• Car allowances.
• Life insurance and investment insurance expenses.
• Anything that it is not 100% incurred solely and exclusively for business purposes.

Note: Should the Company indent to offer large benefits to employees it is always advisable that such policy is reviewed by our team and if we are not certain of whether or not it constitutes a benefit in kind we should obtain a tax ruling.

Policy of Expenses:

• Management should establish a policy with examples of the type of expenditure are considered reimbursable. Such expenditure are commonly travelling, meeting and greeting clients, daily allowances for accomodation and food and any other allowances agreed by the company needed for the staff to execute the work.
• The staff member incurs the expense and files it to a dedicated folder within the same month or the next the expense has been incurred (note: there is no strict tax requirement with this timeframe so it is entirely up to the company to decide).
• Management approves expenditure.
• Accounts department summarises the expenditure and provides a total to the payroll service provider.
• Payroll service provided includes them in the payslips.
• No payroll taxes are been deducted.

Receipt Information:

Small Invoices

• Small invoices should be scanned and summarised on an expense sheet as provided by the company. Such small expenses usually are taxi receipts, food, bus, etc and usually it is not possible to gather invoices for such small amounts. 
• The staff member summarised them and uploads the approval form with the summary of expense form.
• Once approved, they notify the accounts manager who in tern notifies the person handling the payroll for the specific country.

Large Invoices

• Large invoices, usually > Euros 300 should be raised at the company’s name.

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. Please consult with a professional tax advisor for advice on your specific situation.