The Senior Manager Test

When judging whether you can reclaim an expense from your own limited company use the Senior Manager Test. It assumes that you have already understood what is a business expense. And you already know that a business expense which is “wholly and exclusively” incurred for a business is allowable. Wholly, exclusively, 100% business use! If it’s 1% private, then if fails the “wholly and exclusively” test and it’s not allowable.

Let’s assume that you are now the CEO of a really big organisation with over 1,000 imaginary people and you have about 10 mythical senior managers to help. And they all have expense accounts like you, and they all like to claim the same sorts of things that you might claim. If all ten of these senior managers submitted dodgy reimbursement claims to you would you allow the claims? Ten sets of golf clubs? Ten exercise bicycles? Surely you would strike out the items that look like mickey taking?

After all, it’s your business, you built it up, and the more you pay out to others, the less profit you have for yourself. You are effectively handing them your own money, so you will want to be absolutely sure that the expense is allowable and was incurred for sound business reasons!

You know what looks right and you know what looks wrong. If you would deny a particular item on a claim from the mythical ten senior managers (a £3,000 bill from the vet) then you cannot equitably allow yourself to make a claim for that same sort of thing just because you’re the CEO! Use a degree of judgement.

If you do put an item through as an expense when you shouldn’t, we’re not going to spend a lot of time evaluating it. We’re not close enough to the action to know all the circumstances relating to that one expense. And there are simply too many claims for us to look at, so we do not (and we will not) inspect every single line item, nor will we engage in long discussions of ethics. Unless it’s outrageous (like a wedding in Ibiza) then your questionable claim will simply go through the books regardless. And if you get picked up for enquiry, then you will presumably have a convincing explanation for the tax man.

Yes, one of our client’s once included a bill for her wedding in Ibiza. It had not been billed to her company, and not even to her, but to the groom. Anyway, she’s not a client any more!

We no longer argue with clients over what is authentic and what is not. However, may we please remind you that as a profession we are required to prepare a “true and fair” picture of where your business stands.

If at any stage a director thinks something is not “true and fair” then the director’s duties at s.172(1)(e) Companies Act 2006 require you to act accordingly.

Does it have to be “true and fair”?

Yes, that’s what s.393 Companies Act 2006 says.

Is it an allowable expense? It’s your call.