Don’t get caught out when recording business vs private mileage

A recent YouGov survey found that 56% of company car drivers are unaware of HMRC rules on reclaiming business mileage. Unfortunately as penalties from HMRC for inaccurate recording of this can be very high, it is important to adopt an accurate method of recording both business and private mileage and to understand exactly how this should be calculated.

Mark McKenna of Bluedrop Services explains how to record your business vs private mileage and provides tips to keep on track.

Potential penalties following inaccurate recording and calculation of business mileage

If your business was to inaccurately reimburse mileage expenses over the correct amount, or to reimburse for private mileage when you don’t provide free fuel, then you could be subject to an Income Tax and Class 1 NIC liability. Such a financial penalty can easily hit six figures. Not to mention the additional costs that may be going through your business in terms of fraudulent claims for employees claiming longer or even non-existent journeys.

Any company utilising company vehicles for business use has a duty to report the usage of vehicles for business use to HMRC and must keep mileage records to show business vs private mileage usage. If the company does not provide free fuel for private usage of company vehicles then the records must reflect this. Your records will need to include information on the date, the reason for the journey, number of miles travelled and locations travelled between. In addition the claim will need to identify the vehicle, type, fuel, cc etc. to tie in with amount claimed.

Reasons for facing a possible liability claim

The reason for facing a possible liability claim is due to the fact that tax relief is available for either travel in the performance of duties or the need to travel to a particular place as part of your duties. However, tax relief is not available for private usage which even includes a normal commute to work, which is considered private usage. As it is estimated that up to 60% of business drivers overestimate their claims for business fuel it is understandable that HMRC are hot on the topic of auditing and issuing fines and penalties for inaccurate recording of data.

HMRC publish authorised rates for business mileage reimbursement (AMAP) for private cars and vans utilised for business use, which is 45p per mile for the first 10,000 business miles and then 25p per mile thereafter. However, if an employer reimburses in excess of this then they need to report this on a P11D. Should an employer decide to reimburse above the AMAP rate then they will incur an Income Tax charge on the excess. AMAP payments are set in law and so they can be paid tax free. HMRC make it clear however that accurate mileage records need to be kept to prove the mileage travelled to ensure that businesses aren’t falsely receiving tax relief illegally.

In terms of reimbursement for company owned vehicles there are no statutory rates, just guidelines on Advisory Fuel Rates (AFR) which are published online. It is therefore up to the individual business what rates they offer, or if they chose to manage fuel expenses more rigorously with the use of fuel cards.

Methods to improve your recording of business vs private mileage

Accurate GPS Technology, Telematics, Fuel cards or Smartphone Apps can be used to help track the time used for business vs private mileage. The problem with each of these systems is that they still do rely heavily on drivers identifying the nature of the journey (business or private) themselves. However, implementing such types of tracking systems will dramatically help guard against the common problem of leaving claims until the last minute, and not fully remembering details of each journey incurred when compared to a more manual system.