Recording business mileage is not something that anyone likes to do but the consequences of not doing so correctly can prove expensive for both employer and employee.
Business mileage claims are just one of the records checked when HMRC visits an employer’s premises to carry out an employer compliance review. During such a review, HMRC will look to establish that business mileage paid does no more than reimburse the cost incurred for genuine business travel.
Where an employee uses his/her own car, an inability to substantiate the business mileage could lead HMRC to conclude that the business mileage reimbursed exceeds the cost incurred resulting in additional liabilities to PAYE and NIC.
However, where business mileage reimbursed relates to journeys in a company car, an inability to substantiate the business mileage could lead to a company car fuel benefit charge being imposed by HMRC. A company car fuel benefit is an ‘all or nothing’ charge – even if fuel for only one private mile is paid for by the employer then a full year’s car fuel benefit should be included on the employee’s P11D.
A typical fuel charge would be £4,000 to £5,000 per year, giving rise to a tax charge of between £1,600 and £2,000 at a rate of 40%.
Whilst the tax liabilities in relation to benefits in kind are the responsibility of the employees concerned, HMRC will normally agree that if the employer settles these liabilities no penalties will be raised in respect of incorrect P11Ds.
In these circumstances, HMRC will view the tax settled by the employer on behalf of the employee as if it were an additional payment of net salary. Accordingly, the additional liability faced by the employer is not merely the overpaid expenses or income tax due on the car fuel benefit, but also the PAYE plus employee’s and employer’s NIC that would have resulted had the employer made an additional net salary payment equal to the overpaid expenses or tax on the car fuel benefit.
HMRC guidance states that to support a business mileage claim:-
“You will need to keep records of your work journeys (date, mileage and details of journey). This is because your employer will need to know the mileage in order to make any expenses payments to you. You will need them to substantiate your right to any Mileage Allowance Relief, whether or not you do this via a tax return” An employer’s records should therefore contain enough detail to enable HMRC to complete an independent review of the business mileage claimed. It is therefore recommended that the following information is included in all business mileage claims:
- The date of the journey.
- The starting and end points of the journey. Whilst a full address would be preferable, a number/house name and post code should suffice.
- The mileage.
- The reason for the journey.
- The type of vehicle used i.e. car, van, motor bike or bicycle.
- For company cars only – the engine capacity and fuel type of the vehicle used together with the= resultant mileage rate.
The cost to an employer of incomplete and/or inaccurate record-keeping as regards business mileage claims is not simply the cash cost of the additional PAYE and NIC, but also the management time wasted and professional fees incurred dealing with the enquiry.
Fleetmiles is an intuitive system that helps business to automate the tasks required to manage HMRC compliant mileage claims and reduce mileage expenses. For more information call 01420 544514.