Mileage expenses and HMRC compliance – what can you do?
By Kyle Lindsay
Wednesday, October 29, 2014 - 17:09
Penalties can be as high as £30k per vehicle
It’s no secret that the HMRC are cracking down on business mileage expenses among the fleet industry, with penalties coming left right and centre ranging from £5k to more than £30k per vehicle.
Business mileage is often be the largest single expense claimed by employees, with drivers ranging from sole traders to public sector. Things get even more complicated when you factor in a Grey Fleet as employees driving their own vehicles are often times larger than those in company cars.
With these factors in mind the range and depth of mileage claimants in the UK is so varied there is no single universal rule for mileage claims. Instead fleet managers adhere to a series of recommendations and authorised payments that employers can choose to adjust slightly depending on specific circumstances.
Business mileage takes many forms and often the reimbursment is tax free, when the mileage is overpaid it essentially creates a problem as monies have been paid to an employee without the relevant rate of tax being applied – the HMRC will see this as either overestimation or in the worst case fraud.
To give a simple example if a driver has been overestimating business mileage by 20% on 20,000 annual business miles then they have effectively been paid for 4000 miles tax free. You can therefore see the HMRC’s point of view.
The HMRC work out penalties as a percentage of the additional tax due which is calculated when the inaccuracy is corrected. The HMRC measure this potential lost revenue differently where the inaccuracy results in an overstated loss, with rates going from 30% if the inaccuracy is careless to 100% if the inaccuracy is deliberate and has been concealed. There is no penalty if a person can demonstrate they have taken reasonable care to get their tax right, but despite this, submit an incorrect return.
If you find yourself under investigation, the HMRC will want to see detailed mileage records that show each and every trip that has been claimed – where it started, where it ends, the reason for the trip and the address details. For some organisations it is impossible to gather the required information and challenge the HMRC as often an employee is only ever required to submit a consolidated monthly claim and it is probable they will not have kept a detailed record of all their journeys.
There are tools out there to help with this and to ensure your companies business mileage claims are compliant, including Fleet Innovations PEAK dongle that accurately records mileage, but it could be too little too late.
If you think you have a problem, then we’re sad to say that you probably do. It’s not too late to take action though, with companies such as Fleet Innovations regularly offer a free of charge audit service that will review your polices, forms and procedures to assess what potential issues may be hidden in the woodwork. The good news is that it’s not always difficult or expensive to fix and a small change to the process or an additional field on the claim form could be all that it takes.