Manage business expenses

Recording both business and private mileage accurately  is essential to meet HM Revenue and Customs’ rules on journey expense claims and to manage travel costs tightly.

Facts

  • UK businesses paid out approximately £5.8b in employee expenses, with over £1b estimated to be false or ‘out-of-policy’ (2)
  • 20% of UK employees admit to having exaggerated expense claims (2)
  •  13% of UK employees say they are likely to exaggerate their expenses in the future if they find themselves in economic difficulty and think they “can get away with it” (2)
  • A survey of 3,000 UK employees by Travelodge found that the typical worker pocketed an extra £17 each month in claims, citing one of the top three expense ‘scams’ as adding mileage to a claim (2)
  • Mileage bills dropped by 25% when organisations introduced measures to capture and audit their drivers’ mileage reports (3)
  • According to the Global Expense survey, out of all expenses, business mileage is the most likely to be exaggerated, with 60% exaggerating the amount of fuel that they use.

The issue

Mileage capture is the process of obtaining accurate odometer readings from vehicles and, historically, has been achieved by drivers recording business mileage on a paper-based log. However, such systems rely on the integrity of employees for their accuracy, are open to widespread abuse and are administratively cumbersome for both employees and employers. An auditable mileage trail clearly identifying work-related trips and private mileage is, therefore, essential

Tax authority guidance states that employers “need to keep details of any payments made to you by employees and directors for use of the car or fuel used on private journeys” (1).

While most company cars have a private use element, the majority of drivers are not recipients of company- paid fuel for private use. However, to prove that point and for drivers to avoid paying benefit-in-kind tax on a car fuel benefit charge multiplier figure of £18,000 in 2010/11, accurate mileage records are essential. Equally by introducing a robust mileage reporting regime, companies can show that Class 1A National Insurance contributions are not due as they should be paid on all benefits-in-kind.

Therefore, with the onus on companies to meet HM Revenue and Customs’ rules that employees pay for fuel used privately - either at the pump or through a company recharge system - it is essential that detailed, auditable systems are in place to record journey details.

Employers must be able to substantiate the end of year P11D returns and, where a ‘nil return’ is declared, it is necessary to demonstrate that compliance rules have been met in practice as well as in theory.

A similar system is also essential in relation to LCV’s. Employees who drive a company van on private trips and use employer-provided fuel will face benefit-in-kind tax bills based on a £3,000 charge for the van and £550 for the fuel unless use is deemed ‘insignificant’ (1). Once again, any benefit-in-kind charge will also attract employers’ Class 1A National Insurance liability.

The tax rules state that employers “need to keep sufficient records” to prove that there is no private use and recommend that mileage records are kept to show how vans are used. The tax rules also advise employees to keep their own mileage records too.

How ProFleet2 can help

ProFleet2 automatically captures mileage through remote odometer readings meaning that reporting is always up-to-date, accurate and timely significantly reducing administration time for drivers and businesses alike with expense claims and monthly fuel expense reconciliation.

ProFleet2 meets HMRC guidelines on expenses claims and is therefore helps with P11D reporting, which, as highlighted above, is particularly crucial to meet benefit-in-kind private use rules and improve tax efficiency.

Additionally, accurate mileage recording enables fleet decision-makers to better align actual mileage travelled with contracted mileage to avoid any end of contract charges.

Meanwhile, for fleets operating an Employee Car Ownership scheme it is vital for those moving to monthly reconciliation to have mileage records submitted in a timely manner every month. Where no mileage is submitted the company has to assume 100% private mileage resulting in the grossing up of the monthly allowance with resulting increased costs for businesses.

Information sources

  1. HM Revenue and Customs, http://www.hmrc.gov.uk/guidance/ca33.pdf and http://www.hmrc.gov.uk/vans/
  2. Institute of Business Ethics ‘Corporate expenses: the ethical challenges’, http://www.ibe.org.uk/publications/Briefing_12.pdf
  3. The Miles Consultancy, http://www.tmcuk.co.uk/news_body.asp?pkey=60