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.
Top 5 tips to keep your business vs private mileage recording on track
- Check 10% of you mileage records. If more than 10% of them end in s ‘0’ or a ‘5’ then it is likely that claims are being rounded up.
- Be aware of employees travelling to the same places regularly. If employees are regularly attending the same place for more than 2 days a week on average, this may be deemed by HMRC as their normal workplace (or one of them) and the mileage would then be taxable.
- Check Fuel card expenditure. Patterns in different levels of expenditure can highlight possible inappropriate expenditure is occurring (cigarettes, confectionery, the weekly shop…). Look out for this internally as it could be highlighted in an audit.
- Check dates of fuel receipts. Check that fuel receipts are for the correct period. It’s an easy mistake to make but it can also lead to over/duplicate claims.
- Adopt the ‘Lesser Than Rule’. Many business journeys will see the employee travelling straight from the location to home, rather than stopping at the office base first or vice versa. This obviously then partly includes your normal commute somewhere in the mix. Many businesses will use the ‘lesser than rule’ in these circumstances, meaning you claim whichever is lesser: The actual mileage 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.
Written by Mark McKenna
Mark is a commercial insurance specialist. Starting work in the insurance profession in 1985 he has over 30 years’ experience in all areas of commercial insurance. As National Sales Manager for Bluedrop Services. Mark currently specialises in Motor Fleet Insurance and offers advice and support to customers in this area.