Did you know that non compliance could cost as much as £34,000 per driver?
What does it take to ensure your HMRC compliant mileage expenses? Unfortunately HMRC don’t have a definitive guide. Our guide we will explore the hints, tips and areas you must consider to ensure you have compliant and accurate mileage expenses.
This guide will help you in all aspects of mileage compliance including:
[list-ul type=”check”][li-row]How to tell if you are compliant[/li-row][li-row]How to become compliant[/li-row][li-row]What happens to non compliant claims[/li-row][li-row]Quick fixes for compliant claims[/li-row][li-row]Compliant mileage policy[/li-row][li-row]Mileage claim accuracy[/li-row][li-row]How to deal with HMRC[/li-row][/list-ul]
An overview of HMRC compliance
What is compliance, are you compliant and how can you tell
HMRC want you to pay the right amount of tax.
Business mileage expenses can take many forms (see mileage rates below) however under most circumstances reimbursement for mileage is tax free. Often the catalyst for an investigation from HMRC is where they believe that mileage has been overpaid due to overestimation and fraud. The problem with overpayment of mileage is that monies have effectively been paid to an employee without the relevant rate of tax being applied
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.
Below is a simple example of a 40% tax payer using an AFR of 17pence per mile:
- 4000 miles at 17 pence = £680
- Tax, Employees NI and Employers NI that should have been paid = £379.44 (at time of writing)
- Tax that could have accumulated over the last 6 years = £2,276.64 (approx)
The quick calculation above is the same basic calculation an HMRC inspector will make to quickly understand the size of the prize/problem
This calculation is only representative of one driver… Now consider this if your employ 100 drivers. Suddenly you are in a position where you could owe backdated tax equating to around £200,000
The next step for HMRC is to work out how much you owe them. This will be based on the tax owed, the penalty that that is applied, the interest for the period and quite simply how nice you are.
There is simply no point in hiding documents, being elusive, being rude or threatening. All these behaviors will work against you and will increase the penalty you pay. Remember Al Capone could challenge virtually any criminal organisation and escaped the clutches of the police regularly. It was the tax man however who brought him to justice. Best to be up front, apologetic and incredibly nice. Alternatively employ someone who really knows what they are doing and knows how far they can push things. In other words employ a good accountant.
The short answer… Yes
However you may be able to suspend the penalty you owe. To suspend a payment is a bit like a suspended sentence. You have to be a very good boy/girl, put all the measures in place to prove you are being behaving and have your probation officer keep an eye on your affairs.
HMRC or your accountant will be able to advise you on your suspended payments and whether it is possible or not.
You may be able to negotiate a payment plan as well. This will allow you to spread the payments over an agreed period, however you will need to prove why the payments should be spread and have evidence to back it up. HMRC do not want to put you out of business or bankrupt you so some leniency will be given if you have a good reason.
Its difficult to say exactly as each situation is judged on it’s own merits. We have however seen payments ranging from just a few hundred pounds to well over £30,000 per driver.
You need to factor in the following:
- Tax: The amount of tax you should have paid for the period under investigation
- Interest: Interest on the tax that you should have paid
- Penalty: You have been naughty and HMRC want you to pay for it literally.
HMRC calculate penalties as a percentage of the additional tax due. This will be calculated when the inaccuracy is corrected. The additional tax due is called the potential lost revenue.
HMRC measure the potential lost revenue differently where the inaccuracy results in an overstated loss.
The penalty rates for inaccuracies can be
- up to 30 per cent of the potential lost revenue if the inaccuracy is careless
- up to 70 per cent of the potential lost revenue if the inaccuracy is deliberate
- up to 100 per cent of the potential lost revenue if the inaccuracy is deliberate and the person attempts to conceal it
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.
It’s Saturday morning and Brendan Jackson was on his way to Stansted Airport with his wife Emily and 3 children for a well-deserved rest in Lanzarote. Brendan had a small successful business and the year had gone well so he had pushed the boat out for the holiday and upgraded the apartment.
On the way in to the office he needed to stop by the office to drop off some papers for the team on Monday. While opening the door he noticed the letter from HMRC and was in two minds if he should open it or not.
As the saying goes curiosity killed the cat and bob opened the letter.
After the sinking feeling came the hot sweats and the feeling of denial and the realisation that he had been caught out. The letter from HMRC outlined a a compliance issue with his mileage expenses and most notably outlined a payment that equated to nearly £20,000 leaving his profit for that year looking much smaller than expected.
The only question to ask now… Should he tell his wife before or after the holiday?
The names have been changed but the story is real and its happening every day to unsuspecting businesses causing pain, denial and considerable cost. You can protect yourself from this. Book an online demo of PEAK today to find out how.
Take our quick compliance quiz
See if you are compliant or not
How to become compliant
The steps you need to take to ensure your mileage claims are HMRC compliant
The key thing with a mileage expenses process is that due care and attention is placed on accuracy of the claim data and that someone makes an effort to approve mileage claims or at very least make regular spot checks.
- Put a mileage policy in place. You need to be completely certain that your drivers are clear on the policy for what can and can’t be claimed, the code of conduct they must follow and the consequences for getting it wrong. Be sure to remove ambiguity and make it clear that if you see mileage fraud as gross misconduct… a sacking offence. Mileage overestimation is after all stealing and should be considered in that way.
- Provide a clear, compliant and concise form or system for your employees to enter their mileage and make sure that each month there is a clear cut-off date for when the mileage should be completed. Saving up 6 months of mileage is not good for anyone, is difficult to budget and should not be tolerated.
- Make sure that all the relevant data is submitted through to a manager for approval. Think about the terminology here, does your boss sign your mileage or check your mileage. A signature takes seconds and required no time input. Checking mileage requires someone to look over the claim and check it for accuracy. We are not saying you go over it with a fine tooth comb but at least see if it makes sense, is it really 610 miles from Reading to Gloucester or has someone accidentally made a typo.
What makes a compliant claim?
Well here is the interesting part; nowhere on HMRC’s website does it categorically state what makes a claim compliant or non-compliant, well not that we can find anyway. All is not lost however as we have pulled together a list of the Key areas from HMRC letters to companies and individuals.
Want to check your mileage expenses compliance?
The Key Things to look For to Ensure a Claim is Compliant
- Do you or your drivers include the date of travel?
- Do you or your drivers include where the journey starts?
- When completing a claim do you or your drivers include the place and/or company visited?
- Do you and your drivers include the start and closing mileage?
- Do you/your drivers show the total business miles?
- Are claims regularly checked for accuracy?
For a truly compliant claim all of the above need to be included!
To ensure you are compliant you need to fix both your mileage policy and also the process for collecting the data.
The mileage expenses policy: It’s important your policy is related to your own situation and your organisations unique circumstances. Think about the following:
- What information is required by your organisation for a claim to be complete?
- When should claims be submitted?
- What happens if claims are not submitted on time?
- Who will approve mileage?
- What mileage rates will be used?
- How will you check drivers are using the correct rate?
- Will you be using a fuel card? What are the rules around the usage?
- What are the consequences for fraud?
- How regularly will you audit mileage?
- What happens when someone get s a new car?
- What happens if cars are shared by employees?
- What happens to pool car mileage?
- Outline the HMRC[highlight1]*[/highlight1] lesser than rules.
- Make it clear what you can and can’t claim
- What happens when someone is leaving the business?
[highlight1]* Some business journeys will involve travelling to a location directly from home without visiting your office or base. Some journeys will involve returning home at the end of the working day without visiting your office or base. Many businesses use the “lesser than rule” meaning you claim whichever is lesser: The actual mileage that you travelled from your home to the location OR the mileage that you would have claimed if you had travelled from your base to the location.[/highlight1]
You could go through all the steps outlined above, or you could contact fleet innovations and we will show you how to gain complaint mileage claims in just a few short steps using the award winning PEAK Mileage Capture System
PEAK = Compliant and Efficient Mileage Claims
Whether you are looking for a manual claim, using post code look up or a GPS claim using our patent pending Trip Stick or IPhone app, the PEAK Mileage System is perfect for any type of user.
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