Katie O’Regan, consultant at Fleet Innovations, looks at ensuring mileage records satisfy the taxman.
Towards the beginning of the year Her Majesty's Revenue and Custom (HMRC) launched a new methodology to target Employer Compliance reviews on their key clients.
To do this they recruited 'Compliance Champions' from a variety of industries with experience and familiarity of taxation and working practices within their field of expertise.
In a poacher turned gamekeeper way, these 'Compliance Champions' have written to large businesses (starting with the top 2000) requesting a meeting as part of the HMRC's Know Your Customer (KYC) regime.
In a nutshell they ask you to supply: all documents requested prior to a meeting; be able to produce and answer questions on your policies and procedures; make sure your management team and other key stakeholders are available; and most importantly be prepared for what may lie ahead.
Business mileage is important in the KYC campaign as it’s a universal expense, that for many organisations (when linked with fuel), is the largest single employee expense that is likely to be regularly claimed.
The claimants of business mileage in the UK range widely from the smallest business or sole trader to the largest business or public sector organisation. One area that is often forgotten around business mileage is that it's not necessarily related to those who drive company cars (known as Grey Fleet). Employees driving their own vehicles can dwarf company car fleets and can be particularly prevalent in certain business sectors.
When you consider other expenses and benefits there is often a clearly defined process and form to fill in, with mileage however there are no such forms. As a result the range and depth of mileage claimants in the UK is so varied there is no single universal rule for mileage claims, but instead a series of recommendations and authorised payments that employers can choose to adjust slightly dependent upon individual and corporate circumstances.
In our own research we have discovered a variety of different mileage rates ranging from just 10 pence per mile to well over £1 per mile. There are as many as 16 distinct ways that an employee can be reimbursed for business mileage (Pay and Reclaim) or reimburse their employer for private mileage (Drive and Refund).
It is therefore no surprise that many organisations get mileage wrong and leave themselves open to scrutiny by HMRC.
The problem with rising and fluctuating fuel prices is that it increases the cost of business mileage. In the last decade the reimbursement rate for a diesel car will have more than doubled from around seven pence per mile to around 17 pence per mile (correct at time of writing).
This increase now means is that any over/under estimation in mileage soon adds up, a trend that is sure to increase over the coming years. It is therefore essential to ensure that mileage is only reimbursed for actual miles travelled and not for overestimation.
Whilst the cost of fuel has raised, the mechanism that enables small businesses and individual users to claim business mileage (AMAP) has increased from 40ppm to 45ppm for the first 10,000 miles.
So before you get issued with your KYC letter be prepared. If you think you have a problem, you probably have! Get it checked out.
The good news is that it’s not always difficult or expensive to fix. In fact a small change to the process or an additional field on the claim form could be all that it takes.
The clear message though is that you must get on top of it. If HMRC find issues within your mileage then you are opening up your business to further scrutiny. Ask yourself - Do you really want the hassle, time and disruption of opening up everything to HMRC? Or would it just be simpler to find out the problem and fix it? More often than not prevention is better than cure.