Last week, the President of the Government, Pedro Sanchezhe admitted receiving money as general secretary of the PSOE, even though it was “not a common thing”. For years, many companies and institutions have operated with a simple formula: pay the daily allowance or professional expenses of their employees in cash (taxis, business lunches, accommodation, etc.) and then justify the disbursement with the corresponding invoice or purchase receipt. However, the widespread use of electronic payments and regulations against tax fraud have minimized the possibilities of using cash in the corporate or institutional sphere. Today, in the eyes of the Treasury, means of payment matter a lot.
The debate gains strength at a time when the Revenue Agency intensifies the surveillance of companies’ deductible expenses. Is it valid to pay cash for a meal with a client and then deduct it as a business expense? What happens if the purchase of office supplies is settled in cash? What happens if an employee is reimbursed for hand travel? The answer depends on the amount, whether the expense is adequately documented and, above all, whether it is possible to trace its origin and destination.
From 2021, the law limits cash payments between entrepreneurs or professionals to 1,000 euros. Exceeding this threshold may result in sanctions arriving 25% of the amount paid. But even below that figure, a no-bank payment raises tax justification issues: the Treasury can deny the deduction if the cash flow is not proven. For this reason, experts recommend favoring bank transfer or card, which leave a trace and offer greater legal security.
In short, metal is losing ground and traceability is gaining weight. In company accounting – and in the pockets of managers – every euro must be traceable down to the last cent.
Gonzalo de Luistax lawyer, Alfredo Aspra partner of Labormatters Abogados and partners of Molins & Parés, Laura Pares AND Marco Molinsresolve the main doubts on this issue from three perspectives: fiscal, labor and compliance.
What limits does Spanish tax law establish for the cash payment of compensation for professional expenses?
The rule establishes a limit of 1,000 euros for cash payments if at least one of the parties is an entrepreneur or a professional. Therefore, the businessman can pay in cash, without exceeding this amount, although it is not an ideal or usual means of payment.
As long as this limit is not exceeded, Gonzalo de Luis assures, companies can reimburse expenses related to mileage or employee maintenance in cash without violating any tax obligation.
What sanctions might a company face if cash payments are considered part of wages or are not supported by valid documentation?
The reimbursement of a company expense justified by an invoice addressed to the company must be distinguished from the maintenance and travel allowance.
For example, the worker pays a business expense that is not for his consumption or benefit and requests an invoice in the name of the company. The company reimburses you in cash, respecting the limit of 1,000 euros. “No problem. The worker was a simple intermediary, he advanced the money,” says Gonzalo de Luis.
However, if the worker receives cash to pay expenses maintenance, travel or overnight stay Because of your work, the company must declare it on its payroll. If the worker withholds the entire sum received, up to a certain limit established by law, he will be exempt as long as he is justified (petrol, restaurants, etc.). Beyond this limit the worker will be subject to taxation and the company will withhold. Payment in cash, in any case, cannot exceed the legal limit.
“If the company does not calculate the exempt and subject diet, but subjects it to withholding when it should, the Tax Administration will demand the withholding that should have been made without being able to transfer it to the worker, in addition to the penalties that could be imposed,” warns Gonzalo de Luis.
To what extent can cash payment of per diem or travel expenses be interpreted as salary compensation for social security contributions and reporting purposes?
In reality, the payment method (cash or not) with which a certain financial amount is paid does not determine its remunerative nature. «This character derives rather from the underlying legal nature of the economic concept in question», explains Alfredo Aspra. The key is whether that amount is compensated for your work (or similar periods of time). In this case the salary will be considered. “Logically, the different issue is that cash payment may make determining such legal nature difficult in practice,” says the Labormatters partner. In other words: the payment method alone does not determine the legal nature (retributive or otherwise) of the concept of remuneration in question.
Is there a worker’s right to demand that these compensations be paid by bank transfer to ensure transparency and traceability?
As established by article 29.4 of the Workers’ Statute, “Salary, as well as the delegation of payment of social security benefits, may be paid by the employer in legal tender money or by check or other similar means of payment through credit institutions, after reporting to the works committee or personnel delegates.” Therefore, all remuneration (salary or not) can be paid in cash or other form of payment. «However, for evidentiary purposes it is always better to have express proof of the payment made (whether in cash or in another form)», recommends Alfredo Aspra.
Could an employee refuse to receive cash payments due to lack of evidence or legal certainty, and what consequences would such a refusal have?
Any payment method is legitimate as long as it is carried out in compliance with customs and traditions or, where appropriate, as conventionally provided. «The fact is different that, regardless of the method of remuneration in question (cash or not), the worker (but also the company) can (and must) demand written proof of payment», explains Alfredo Aspra.
How should the regulatory compliance department address internal cash payment practices to avoid fraud or money laundering risks?
As long as you do not exceed the maximum limits established by the legislation for the prevention of money laundering and tax fraud (1,000 euros) and you pay taxes on them, making cash collections and payments is perfectly legal. “However, there is no doubt that the systematic use of metal cash involves risks, which is why, from a regulatory compliance point of view, it is recommended to reduce its use as much as possible”, underline Molins & Parés.
And if cash collections and payments are regularly made in an organization, this circumstance must be noted in the risk map, after identifying, depending on the company’s activity, whether in addition to fiscal risks, various risks arising from its use could arise (public and private corruption, money laundering, terrorist financing, etc.).
What internal policies or controls are recommended to ensure that cash payments for expenses are appropriately authorized and accounted for?
The most important measure is to establish an internal policy or procedure that is effectively transmitted to all members of the organization. This protocol must answer these questions: when cash can be used, for what maximum amount, how it is authorized and how it is documented.
This involves establishing limits per transaction and per day, assessed purposes, authorized persons with signature order proportionate to the risk, immediate registrations, periodic authorship and checks, and independent audits (surprise counts and cash counts) that match cash, supporting documents and accounting.
In any case, warn Laura Parés and Marc Molins, “it will always be convenient to move the operation towards electronic means of payment (POS, bank transfers, company cards with rules and limits) and expense management applications that collect and automate the exchange of information, so that cash management is truly residual”.
How do anti-money laundering and financial transparency rules impact the management of these small payments within the company?
It affects which controls to activate and how intensely. Law 10/2010 on the prevention of money laundering and terrorist financing and Royal Decree 304/2014 which implements it require obliged entities to identify, examine and, where appropriate, report suspicious transactions without a minimum threshold. “A cash payment, no matter how small, will be relevant depending on its frequency, its recipient or its weak justification,” Molins and Parés point out, which is why a risk-based approach is also advisable for cash. minor and sufficient documentation and electronic means of payment by default; and, in case of doubt, “interrupt the operation and immediately submit it to the Supervisory Body”.
