Fleet News

Cost warning over mileage claims without VAT receipts

One in four mileage claims – a staggering 26.4% – is made without a valid receipt, research suggests.

However, while the figures might give cause for concern, they are a vast improvement when compared to claims made in 2010 when 43.4% did not come with an accompanying receipt.

It is open to debate whether this improvement has come about from organisations seeking to reduce costs generally, the greater automation of expense claims or due to alarm at the cost of not recovering VAT at the new 20% rate.

However, there is clearly still room for improvement, especially when mileage claims are compared to most other types of expenses, where almost 100% are submitted with a valid receipt.

“The increase in VAT from 17.5% to 20% in January 2011 has clearly encouraged organisations to invest extra time and energy in ensuring all VAT recoverable expenses have valid receipts for HMRC,” said David Vine, senior director at expense company Concur. “However, mileage remains a problem child.”

Now in its sixth year, the Concur Employee Expenses Benchmark Report analyses more than £609 million in expenses paid by British-based organisations.

This huge sum comprises 10.25 million individual expense claims made by more than 200,000 UK-based employees over the past three years from a wide range of organisations in the private and public sectors.

More than 1.3 million of those claims were approved mileage claims made between 2009 and 2011, accounting for more than 618 million miles driven for business purposes by users of Concur systems.

It shows the typical mileage claim increased over this period from 70 miles in 2009 to 76 miles last year.

However, because of changes in the cost of fuel, particularly the increase in VAT, the typical mileage claim has increased in cost from £11.67 to £14.83 – a 27% increase. This means that the typical cost per mile has increased from 17p to 20p over just two years.

According to the study, for every £100 a UK business paid out in expenses last year, nearly £10 (£9.85) was spent outside of that organisation’s expenses policy, for example on business class tickets for short haul flights, or rooms in non-preferred hotels.

Vine said: “Expense policies are there to help employees make the right decision when spending on their employer’s behalf. While there’s no question that UK companies understand the importance of having a policy in place, some are clearly struggling to ensure it is properly understood, implemented and followed by their staff. This inevitably leads to inefficient spending, lost money and inaccurate forecasting.”

Ensuring the VAT paid on employees’ expenses is fully recovered wherever possible is essential to prevent this tax from being an unwanted additional cost. Or, put another way, businesses that don’t fully recover VAT will automatically have unnecessary higher costs and lower profits.

This became even more important when the VAT rate increased in the UK to 20% from January 4, 2011.

Concur’s analysis shows around 85% of all the VAT paid on employees’ expenses can be recovered – but to get this, expense claims need to be supported by an appropriate VAT receipt or other supporting evidence.

In past years, organisations have been able to reclaim about 90% of the recoverable VAT – that’s 90% of 85%, which is 77% of the total VAT paid on expenses. The remainder is forfeited as a result of around 10% of claims, mainly mileage claims, not being supported by appropriate receipts.

Another survey of 2,130 UK adults from Concur revealed that employees see expense fiddling as a legitimate way of supplementing their salary if they believe they are underpaid.

According to the study conducted by YouGov, one in five people (18%) believe it is acceptable to exaggerate expenses ‘when an employee works long hours but isn’t paid overtime’.

Mileage is the biggest area of potential expense fiddling with more than one in four (26%) judging it acceptable to exaggerate expense claims when the ‘mileage rate paid by the employer doesn’t cover the actual car and fuel costs’.

The report also revealed that only around one in 20 (6%) employees in the public sector have fiddled an expense claim in the last year compared with one in eight (13%) in large (250 – 749 employees) organisations and one in seven (13%) in the voluntary sector.

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