How to Use Xero Expense Claims: A Step-by-Step Guide

Why Expense Claims Matter

Almost every small business has out-of-pocket spending. An employee buys supplies on a personal card, the owner pays for parking in cash, a contractor covers fuel during a job. If those amounts never make it into your books properly, you lose deductions, your reports understate costs, and reimbursements get forgotten or double-paid. Xero Expense Claims gives you a structured way to capture, approve, code, and reimburse this spending so nothing slips through.

This guide walks through how expenses work in Xero, how to set them up, and how to keep your GST and categorisation correct along the way.

Two Ways Expenses Work in Xero

Xero handles personal out-of-pocket spending through its Expenses feature, which most plans now include for a small per-user monthly fee. There are two main paths:

• Expense claims: An employee or owner records a personal purchase, attaches the receipt, and submits it for approval. Once approved, it becomes a bill that you reimburse.
• Receipt capture in the Xero Me app: Staff photograph receipts on their phone the moment they spend, and Xero reads the date, amount, and supplier automatically. This is the cleanest method because the receipt and the record are created together.

Keep this separate from spending on a business card or bank account. Those transactions flow in through your bank feed and are reconciled directly, not through expense claims. Expense claims are specifically for money a person spent personally that the business needs to pay back.

Step 1: Turn On Expenses and Add Users

In Xero, go to the Expenses area under the main menu. The first time you open it, Xero prompts you to set it up. You then assign each person an expense role:

• Submitter: Can record and submit their own claims only.
• Approver: Can review and approve claims from others.
• Admin: Can manage settings, approve, and pay.

Give submitters the minimum access they need. Most employees only need to submit, while a manager or the owner approves. This separation is good practice because the person spending the money is not the person signing off on it.

Step 2: Capture the Receipt

The easiest way to capture an expense is the Xero Me app. The person spends, opens the app, photographs the receipt, and Xero reads the key details. They check the amount, select an account category, confirm the GST treatment, and submit. The image stays attached to the record, which means your supporting documentation is stored automatically and is there if the ATO ever asks.

You can also enter a claim from the browser if someone forwards a paper or PDF receipt. Either way, the goal is the same: one record, one attached receipt, coded to the right account.

Step 3: Code the Expense Correctly

This is the step that most affects your books. For each claim line, set:

• Account: The expense category, such as Motor Vehicle Expenses, Office Supplies, or Travel. This drives where the cost lands in your profit and loss.
• Tax rate: Usually GST on Expenses for a standard taxable purchase. Watch for GST-free items. Bank fees, most fresh food, and some government charges should not have GST claimed against them.
• Tracking category: If you use tracking for departments, locations, or jobs, apply it here so the cost reports against the right part of the business.

Getting the GST treatment right matters because expense claims feed straight into your BAS. A receipt with no ABN or no valid tax invoice over the threshold cannot have GST claimed against it, so code those as GST-free even if the purchase normally attracts GST.

Step 4: Submit and Approve

Once a claim is coded and the receipt is attached, the submitter sends it for approval. The approver sees a queue of pending claims, reviews each one against its receipt, and either approves or declines with a note. A clean approval workflow gives you a second set of eyes on every reimbursement, which catches coding errors and personal spending that should not be claimed.

Approve claims regularly rather than letting them pile up. A weekly approval habit keeps your payables accurate and your staff paid back promptly.

Step 5: Reimburse the Claim

Once approved, the expense becomes a payable amount owed to the person who spent the money. You pay it like any other bill, usually through your normal bank payment run, then reconcile the payment against the claim in your bank feed. Xero clears the liability and the loop is closed: receipt captured, cost recorded, GST claimed, person reimbursed, payment reconciled.

For owners who spend personal money on the business, you can either reimburse the claim like an employee or treat it as an owner contribution, depending on how you manage your drawings. Ask your accountant which suits your structure.

Common Mistakes to Avoid

• Claiming GST without a valid tax invoice. No ABN or no proper invoice means no GST claim. Code it GST-free.
• Mixing business card spending into claims. Card and bank purchases come through the bank feed. Only personal out-of-pocket spending belongs in expense claims.
• Letting claims sit unapproved. Unapproved claims understate your costs and delay reimbursements. Approve weekly.
• Forgetting to attach the receipt. The attached image is your audit trail. A claim without a receipt is a deduction you may not be able to defend.
• Coding everything to a single Sundry account. Use real categories so your reports mean something.

Keeping It Clean with Automation

Expense claims are reliable when used consistently, but they still depend on people remembering to capture receipts and code them correctly. That is where automation helps. SortBooks works on top of your Xero file to check categorisation and GST treatment across all your spending, including reimbursed expenses, and flags anything that looks miscoded before it reaches your BAS. The result is a tighter feedback loop: your team captures receipts in Xero, and SortBooks makes sure the coding behind them holds up.

Set up expense claims properly, build the weekly habit of capturing and approving, and you turn one of the messiest parts of small business bookkeeping into a clean, auditable trail.