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Businessman checking business mileage records

Keeping tally: correct business mileage records are essential for HMRC compliance – and the avoidance of additional free fuel benefit taxation


HOW well does your SME business record the business mileage of your company car drivers?

Now, come on, be honest. Is it good enough? Would you get through an HMRC inspection?

HMRC is already on record as saying it wants to inspect SME business records as part of a special task force for compliance and evasion.

This series of Business Record Checks (BRC), targeted at Small and Medium-sized Enterprises’ (SMEs) statutory business records, began in  April 2011 but was suspended virtually a year later to review progress.


“HMRC is taking a more focused approach to SME record keeping”


“The pilot programme, which included discussions with trade and professional bodies’ representatives, found clear evidence that the programme was effective in improving record-keeping practices amongst SMEs.” says HMRC as part of the review.

As a result, HMRC is now taking a more focused approached to SME record keeping and believes the benefits of better record keeping and tax compliance through the BRC programme will provide a financial benefit of £62m by 2014/15.

This revised programme of HMRC business record checks began at the beginning of this month (01 November 2012).

TMC (The Miles Consultancy), a firm which provides mileage audit analysis, says that as part of its business records, SMEs must be able demonstrate that it has recorded the details of its employees’ business journeys.

SME businessman checking correct business mileage paperworkThe business mileage data required includes the date on which the business mileage was incurred, the reason for the business mileage, and the journey details, including the business mileage undertaken.

Paul Jackson, managing director of TMC, added: “HMRC will also check whether you audit your drivers’ expense claims regularly and correct them if necessary to prevent overpayments. Overpaying is tantamount to providing private fuel and carries a big liability for tax and National Insurance,” he warned.

Common record-keeping mistakes

TMC says that in its experience, the four most common areas HMRC looks at when assessing business mileage checks are:

1 Low private mileage. At least 40% of a company car’s mileage is assumed to be private. Less than that, and HMRC will suspect business mileage is being overstated.

2 Too many zeroes. If in excess of 16% of recorded business mileages end with a zero, HMRC immediately suspects mileages are being rounded up.

3. Does mileage match fuel spend on the car? Does the official fuel consumption of the company car match the alleged fuel spend? Discrepancies suggest foul play in claiming business mileage.

4. Friday/Monday fill ups using a fuel card. Are business mileage claims being over stated to fill up a friend’s or partner’s car too?

What can happen after an investigation?

If HMRC finds your statutory records are inaccurate, then it will instigate a series of suggested reforms to keep your records more accurate.

However, if HMRC finds there is concern over fuel claims, this may well warrant deeper investigation.

If company car drivers have been deemed to have accepted free fuel then they will be liable for free fuel benefit. Currently the free fuel benefit is £20,200, which is multiplied by the company car tax band of the vehicle in question to establish the benefit.

If a company car has a company car tax band of 18%, the free fuel benefit is £3,636. This is then multiplied by the driver’s basic rate of tax.

Paul Jackson again: “Since 2004, the average individual benefit on private fuel, plus associated National Insurance Contributions, has been £1,300 per year. So if half of an SME’s 20 company car business mileage claimants are in the frame for exaggerating their mileage claims, HMRC could typically go back at least four years giving rise to the following tax calculation of 10 x £1,300 x 4 = £52,000.

“Then the SME has to either ensure drivers repay this sum – or stump it up themselves. And that’s before HMRC considers any fines.”

SMEs and business records

Keeping accurate business records for any SME is essential. It will make your business more efficient, more compliant and robust enough to withstand an HMRC investigation.

And if your firm has company cars, then it’s critical you have accurate business mileage checks in place  – failure to do so could result in a major HMRC investigation, payment of taxes in arrears, and potential fines.

Not the sort of thing any SME needs.

So the message for small businesses and SMEs is clear.

Get your records straight, and make sure that includes the business mileage record keeping of your company car drivers.