HMRC is gunning for business mileage claims – be very afraid

Story: RICHARD DAVIES

The Government is short of cash – you may have heard.

As part of the drive to boost revenue collection, HMRC is to review the mileage records of thousands of small fleets. They expect to rake in an additional £120 million.

Starting in the 2012/13 tax year HMRC will carry out Business Record Checks (BRCs); they expect to reach around 60,000 SMEs by 2015.

93% of small businesses would fail an HMRC audit of their mileage records

An HMRC pilot study in 2011 found that 40% of small firms did not keep adequate business records, and one of the weakest areas is business mileage according to Paul Jackson, managing director of TMC, a specialist in systems for recording business mileage.

“Around 60% of drivers claim for more business fuel than they actually use. We know from experience that HMRC is going to extraordinary lengths to find evidence of this in mileage records,” said Mr Jackson. “Unaudited mileage puts fleets in double jeopardy. They overpay for business journeys and risk tax penalties going back six years.”

TMC’s own research indicates that a staggering 93% of businesses in this category would fail an HMRC audit of their mileage records.

Six or even seven figure claims for back tax and fines have been the consequence for some businesses.

iStock_happyatcomputer — Bring it on taxman. Get organized, and you’ve got nothing to worry about

How should you prepare?

Know the rules, and keep proper records. Get advice on what constitutes business mileage, and start to look more closely at expense claims.

Those small businesses with employees that use their own cars for business journeys can be the biggest offenders since they are often less closely monitored than those driving company cars.

A simple error is for the driver to claim mileage for a complete journey without taking account of his or her usual run into the office. Commuting isn’t a business expense.

HMRC’s drive against poor record keeping started in the 2012/13 tax year

“You need to be able to show that your business collects sufficient detail on business journeys”, says TMC’s Paul Jackson, “That means recording the date and purpose of trip, the start and finish points and accurate mileage,” he said.

This is not an empty threat. We can and will track you down

“The Revenue 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.”

£900 million says they’re not mucking about

The resources behind the HMRC crackdown on tax avoidance, evasion and fraud are formidable. £900 million is being spent with the aim of raising a whopping £7.1 billion a year by 2015.

“This is not an empty threat”, said Mike Eland, HMRC director of enforcement and compliance, “HMRC can and will track you down if you choose to break the rules.”

One of the HMRC’s principal weapons are the new taskforces. These are specialist teams that undertake intensive bursts of activity in trade sectors and locations that the revenue believes represent a high risk of tax avoidance, evasion or fraud. The teams will visit traders to examine their records and carry out other investigations. Twelve taskforces started work in 2011/12; 30 more will follow in 2012/13.

HMRC taskforces will target specific business sectors and locations

The taskforces target specific business sectors with chilling precision. So for example if you have a restaurant in South Wales or the South West, or a beauty salon in Northern Ireland, you really do need to make sure your records can bear inspection because taskforces have already been detailed specifically to focus on these sectors in these areas.

This really is serious! If you run a small fleet or if you have a role in business car tax, get your house in order. The great thing is that not only will you be ready if the tax man commeth, but you’ll probably save some money too.

More information on business mileage

TMC sells systems for businesses to monitor their business mileage. Bags of advice too.
HMRC publishes advice on keeping records of employee benefits and expenses.