93% of companies would fail an employee mileage claim audit by HMRC based on figures by TMC, a consultancy firm, could you be the next?
Conventional excel spreadsheets and lack of time mean that employee mileage claims are not checked and therefore these expenses are a time bomb waiting to go off.
HMRC are under pressure to increase tax collections and this is an easy route to take, it doesn’t take any great technical knowledge, just the time to check the journey mileage against an on-line journey planner. If the mileage claimed is more than 10% over the route planner mileage it will be treated as an overpayment.
From the SME perspective it is also an expense you could do without when revenues and profits are already under pressure. In some cases a limited number of employees may be systematically inflating their claims; but these “bad apples” will taint the whole barrel. TMC quote an example of 20 drivers systematically abusing their mileage claims resulting in HMRC treating all claims by 135 drivers as inaccurate. The total charge by the company for paying tax-free “phantom” miles was £200,000.
With the new penalty regime, not only could the company be liable for tax charges and NIC but also penalties for carelessness which could cost the business another 30% of the tax liability.
Tell-tale signs
Low private mileage – HMRC expect that drivers will cover 30-40% of their total mileage as private mileage. Less is suspicious and points to drivers exaggerating the length of their business journeys
Trip mileages ending in zeros – if more than 16% of trip mileages end with a zero it is likely the driver is rounding them up
Pre-weekend fill-up – drivers who use their fuel card to buy fuel on both Friday and Monday may be filling a second car and exaggerating the mileage claim to cover up.
If the Inspector finds any of these signs, the records will be sent for an on-line mileage scrutiny journey-by-journey.
What can you do?
Check the claims (or at least a random sample of claims from different drivers). Confirm that the maths on the claim is correct but also that the mileage itself looks about right. If the claim looks too high question it and make notes on the claim form if the matter is resolved satisfactorily, for example, the driver may have taken a detour because of road works or a traffic queue. Be sensible; if only a few drivers, and always the same drivers, trot out the same excuses for overly high mileage claims then take action.
If you use a robust claim and checking procedure now and in the future, HMRC may not review your old records and if they do you can provide evidence that this problem has been stopped; you may be able to ask for any penalties to be suspended.