According to the AAT this is one of the most difficult problems that exists in relation to business mileage expenses and one where often records are poor.
An example of how serious this can be is highlighted in the Impact Foiling Case. The problem was that when a HMRC inspection took place there were no adequate records of business or private mileage and therefore the company could not say that it had not provided “one” pound (£) of free fuel to the directors. The commissioners decided in favour of the Revenue and said it was too late to repay the fuel provided.
The question for us is; are our clients insisting on adequate expense claims and/or business mileage logs?
Business Mileage Expenses
Implementing a robust and accurate system still seems to create a lot of problems for employers and getting this wrong can prove very expensive when an HMRC officer carries out an employer compliance review. Reimbursing ANY business mileage expenses in excess of the cost incurred may result in an Income Tax and a Class 1 NIC’s liability. Of even more concern is if an employer reimburses the cost of non business or private mileage
in a company car which could result in expensive
company car fuel benefits being imposed by HMRC.
Then there is the interest and penalties that could be
added to the bill.
HMRC Says: What records do I need to keep?
You will need to keep records of your work journeys (date, mileage and details of the journey). This is because our employer will need to know the mileage in order to make any expenses payments to you. You will need them to substantiate your right to any Mileage Allowance Relief, whether or not you do this via a tax return
HMRC will look to establish that the claims made do no more than reimburse the cost incurred for genuine business travel.
Tax relief for business travel
Tax relief is allowed by deduction from the employees emoluments, which includes expenses. Since the changes to legislation introduced in 1998 tax relief is available in two circumstances.
Firstly, tax relief is allowed for travel in the performance of the duties, if the employee is obliged to incur and pay them as holder of the employment and the expenses are necessarily incurred on travelling in the performance of the duties of the employment.
Secondly, tax relief is allowed for travelling to or from a place that the employee has to attend in the performance of the duties. Tax relief is available if the employee is obliged to incur and pay them as holder of the employment and the expenses are attributable to the employee’s necessary attendance at any place in the performance of the duties of the employment.
Tax relief is not available for travel between home and the normal or permanent place of work; normally regarded as ordinary commuting. What does ordinary commuting mean? Well it means travel between the employee’s home and a permanent workplace or between a place that is not a workplace for example a holiday home and a permanent workplace.
HMRC Says: Which journeys are ‘work journeys’?
The table below distinguishes work journeys and non-work journeys.
|Work journeys||Non-work journeys|
|Journeys that you have to in the course of doing your job.Examples Include
||Private journeys unrelated to work Journeys to and from your place of work (commutingJourneys), even if you call at a client’s on the way (unless the journey is significantly different from your usual commuting journey).|
Business mileage reimbursement
The tax treatment of business mileage reimbursement is dependent on whose car is being used for the business journey. If an employer reimburses an amount in excess of the authorised or statutory rates the excess should be reported on Form P11D Return of Expense Payments and Benefits.
The authorised rates (AMAP) for business mileage reimbursement in cars and vans is 45p per mile for the first 10,000 business miles, then 25p per mile for any business miles in excess of 10,000.
Employers using the authorised rates do however need to monitor the amount of business miles claimed at the full 45p rate in order to reduce the rate of reimbursement to 25p per business mile after 10,000 business miles. If an employer reimburses all mileage including amounts over 10,000 business miles at the higher 45p rate there will an Income Tax charge on the excess.
There are no authorised or statutory rates of reimbursement for company cars but HMRC publishes guidelines in the form of its advisory fuel rates (AFR) for business mileage reimbursement for company car drivers. HMRC recommends the use of these published rates when employers either reimburse employees for business travel in their company cars or when employers recover from employees the cost of any private fuel provided by the employer and used for private travelling. HMRC reviews the rates quarterly and publishes the changes on its website.
Taking the situation where the employer supplies a fuel card or company credit card for the employee to buy fuel for the company car. If private fuel is not to be provided the employee has to keep accurate mileage records of business and private mileage to calculate the amount to be repaid or made good to the employer if a fuel scale charge is to be avoided.
How good are the records being kept?
HMRC considers mileage claims ending in 0 or 5 to be rounded claims and will challenge them.
Also, employees are prone to exaggerate mileage claims if they think that the rate of reimbursement is too low. Another common problem are employees who claim to do little or no private mileage when it comes to reimbursing the employer. Sometimes monthly claims show little (10 or 100 miles) or no mileage and an employer cannot let that go.
Expenses have become even more of a hot topic over the last few years, partly because of the scandal of some of the claims of our MP’s. But let us not forget that HMRC employer compliance officers always have and probably always will see this issue as a high risk one with scope for recovering sometimes substantial settlements, especially when company cars are involved and fuel scale charges may be imposed. The rules are strict and often difficult to understand for employees and so it is vital to keep on top of this.
One option is the use of innovative GPS technology, which aids the maintenance of accurate records in a fraction of the time taken to complete ‘traditional’ records. Also, the driver is in control of the data and so ‘Big Brother’ issues associated with off the shelf telematics solutions is also managed. The driver simply hides the detail associated with the private trips but still retains a full audit trail of the business trips to support their claim. Finally the system holds details of the trip reason and ‘friendly’ names etc making it easier and easier to use.
So what is this system? It is PEAK Miles from Fleet Innovations www.peakmiles.com
What does it cost? It is much cheaper than traditional telematics systems and can cost as little as 27p per day for the GPS, Trip Stick based system. Isn’t this a very small price to pay for accuracy and peace of mind.
For more details, contact email@example.com