MILEAGE RECORD GUIDE. Keep your car fleet HMRC compliant//

Transcription

1 MILEAGE RECORD GUIDE Keep your car fleet HMRC compliant//

2 2 Mileage record guide// CONTENTS 1. THE HMRC EFFECT 2. MILEAGE RECORDS 3. COMMON DIFFICULTIES 4. THE COST OF GETTING IT WRONG 5. THE SOLUTIONS 6. THE ABAX SOLUTION 7. ABAX TRIPLOG SAVINGS 8. APPENDIX 1. THE HMRC EFFECT Compliant usage of cars within the workplace is governed in accordance with taxation policy and regulation set out by the HM Revenue & Customs (HMRC). In recent years HMRC have initiated a crackdown on business mileage expenses with organisations potentially at risk of eye-watering tax penalties... So it is now as important time as ever to get your records compliant! (Appendix A,B and C). HMRC COMPLIANCE Often the catalyst for an HMRC investigation is when they believe mileage has been overpaid due to inaccurate reporting, overestimation or fraud. HMRC s task is to get you to pay the right amount of tax so if there is an overpayment of mileage it effectively means tax-free monies have been paid to an employee. HMRC s process for assigning penalties is located in the document Compliance checks: penalties for inaccuracies in returns or documents - CC/FS7a (Appendix D). HMRC penalty calculations are extremely complex but for further information on this topic, please advance to section 4 - The cost of getting it wrong. MILEAGE RECORDS BEST PRACTICE Nowhere on HMRC s website does it categorically state what makes a mileage claim compliant or noncompliant. This makes it incredibly difficult for a business to know whether the practices they have in place currently meet the needs on HMRC. This document will go on to explore mileage records in detail, highlighting what is required, common mistakes, the cost of getting it wrong and ways that you can improve your processes through the use of technology such as digital mileage capture system.

3 4 Mileage record guide// MILEAGE RECORDS WHAT IS A MILEAGE CLAIM? Travelling is a requirement of many employees within a business. When driving a vehicle, the cost of the fuel for business travel is reclaimed through the business and is exempt from taxation. A mileage expense claim is a document submitted by the employee to the business, which details their business travel and is used to calculate reimbursement. In order to avoid expensive fuel benefit-in-kind charges (FBIK), the business must be able to demonstrate a clear separation between the fuel used for business travel and private travel. Failure to maintain proper accounting records is a serious offence in the eyes of the HMRC, so it is vital records are accurate and auditable. WHEN ARE MILEAGE RECORDS REQUIRED? A mileage record is required when a vehicle completes a business trip. Every business trip must be accurately logged according to guidelines set out by HMRC. The only exception to mileage records is if the FBIK charge is paid on the vehicle and it becomes fully expensed. WHAT DO HMRC REQUIRE ON MILEAGE RECORDS? 480 (2017) Expenses and Benefits: A tax guide (Appendix E) provides useful background information to the wider legislative area but gives no recommendation as to exactly what information to include in a mileage record. To find any official information on what is required, you must examine a copy of an HMRC letter leaked on the subject (see opposite) (Appendix F). As experts, ABAX are in a unique position of working directly with clients undertaking business record checks. From all information available, we understand HMRC outline the following criteria for a mileage record to be compliant: The vehicle driven The driver The date Trip start and end location The purpose (place/companies visited) The start and closing mileage Total business miles The mileage rate offered RECORD KEEPING According to 480 (2017) Expenses and Benefits: A tax guide (Appendix E), HMRC require accurate, detailed and auditable accounting records to be kept for six years. Further feedback from numerous customers has suggested that postcode information is also required for each trip. It is not sufficient to show private mileage only, as this cannot be checked.

4 6 Mileage record guide// COMMON MILEAGE RECORD DIFFICULTIES INSUFFICIENT INFORMATION The list of requirements for a compliant mileage record is extensive. Especially when you are required to keep this record for every business trip taken. With the lack of clarity from HMRC businesses often find that the information they currently gather is not enough to satisfy HMRC. ACCURACY Drivers often rely on hand-written paper logs to record their mileage, a practice that leaves room for mistakes, inaccuracies and even deception. It is not uncommon to see drivers try to remember where they were three weeks previous and complete their mileage record last minute using a search engine to estimate distance. This is obviously not HMRC compliant and opens the business up to potential penalties for poor record keeping. ROUNDING The most common form of inaccurate reporting is mileage rounding. Drivers often do not understand the importance of records being 100% accurate and unwittingly round trip mileage up to the nearest.5 or whole number. ABAX has learnt this is a huge red flag for HMRC, so be sure to check your records for evidence of mileage rounding. TIME CONSUMING Mileage records are necessary but due to their detailed nature, they are time consuming for drivers and administration teams. ABAX has found that the average mileage record takes a driver 2 hours per month to complete and an administration team up to 45 minutes per driver, per month to process.

5 8 Mileage record guide// NON-COMPLIANT MILEAGE RECORD - EXAMPLE 1 NON-COMPLIANT MILEAGE RECORD - EXAMPLE 2 At first sight, example 2 is a better illustration of a mileage record. However, the trip distances are rounded to the nearest whole number, no postcodes have been given and if Google Maps is used to verify the distance of the trips, all are drastically over estimated. This would be questioned by HMRC. Additionally, the record requires substantial administration. Example 1 is a typically bad example of a mileage record. There are no individual journey details, starting or finishing locations or details of places visited. Mileages are also clearly rounded up or estimated as all end in 0. The driver has listed no private mileage but we have no odometer reading to verify the total mileage driven. In this example, the business would need to have extraordinary good internal job sheets to have the remotest chance of verifying to HMRC that this claim was accurate.

6 10 Mileage record guide// THE COST OF GETTING IT WRONG 5. THE SOLUTIONS HMRC PENALTY Compliant usage of cars within the workplace is compulsory to avoid expensive HMRC penalties. If there is an overpayment of mileage it effectively means tax-free monies have been paid to an employee. To amend, HMRC will employ a penalty made up of two parts. The first is to backdate fuel benefit-in-kind (FBIK) to the vehicle and tax the business and employee accordingly. The second is a 3,000 penalty to the business for an incorrect P11d. These penalties can be backdated up to 6 years (Appendix E). PENALTY EXAMPLE HMRC penalty calculations are extremely complex but to give a basic example, let us assume the following details: a 40% taxpayer has over-estimated their business mileage driving a car with a fuel benefit charge of 5,106. The penalty for that financial year based on that vehicle would be: Employee: 2,042 Benefit tax Business: 3,000 p11d fine NIC Let us say HMRC backdated this fine for 6 years. That one employee would expect a tax penalty consisting of 6 year s worth of fuel benefit charges; ~ 12,252. The business, come off even worse, they owe 18,000 in P11d incorrect penalties and ~ 4,230 in NIC s or a total of ~ 22,230. Now multiply that across your entire car fleet PLEASE NOTE: This penalty is a very basic calculation. Other factors may include, for example, yearly scaling of the fuel benefit charge, discrepancies in fuel costs due to fluctuations in Advisory Fuel Rates (AFR s) and even owed interest. A BETTER SOLUTION? The HMRC crackdown evolves around two areas compliance and accuracy. As a business, you must ensure you gather the correct data and that it is accurate. As highlighted in section 3 - Common mileage claim difficulties, businesses often face similar issues in ensuring they meet compliance and accuracy standards. This has led to businesses to take advantage of technology. DIGITAL MILEAGE SOLUTION One such technology is known as a digital mileage claim system not only does this provide pinpoint accuracy and tax compliance, but it can also help to improve efficiency and reduce fleet costs. A digital mileage claim essentially works in the same way as a manual mileage claim, except now information is collected automatically and accurately via a device with GPS recording capabilities. Consequently, this paperless solution protects from inaccurate and incomplete mileage claim records. Research by ABAX has shown the use of a paperless digital mileage claim system not only provides compliance and 100% accuracy, but also drastically reduces administration time. Once implemented, expect to see administration reduce by an average of 2 hours per month for drivers, and 45 minutes per driver, per month for administrators. The best bit, an effective digital mileage claim system is cost neutral. The reductions in cost from fuel overestimation and drastic reduction in administration time, greatly outweigh the system cost. PENALTY SCALE The penalty percentage falls into one of six ranges. The range it falls into depends on the type of behaviour and whether it was a prompted or unprompted disclosure. The following table shows the six penalty ranges: (Appendix D) Type of behaviour Unprompted disclosure Prompted disclosure Careless 0% to 30% 15% to 30% Deliberate 20% to 70% 35% to 70% Deliberate and concealed 30% to 100% 50% to 100% If for example, HMRC s original penalty was 20,000 but your business did not help the investigation and your mistakes were found to be deliberate, your fine would be in the 35%-70% range or between 7,000-14,000.

7 12 Mileage record guide// THE ABAX SOLUTION ABAX s mission statement states that we are a problem solver for people who use a vehicle at work. Our products therefore must fulfil this clear requirement. ABAX TRIPLOG Triplog is a digital mileage claim system designed to automatically record all mileage driven by an employee in their vehicle. The tool ensures that mileage records meet the requirements set by HMRC without the copious amount of administration associated with manual claims. This allows the business to document to HMRC, as legally required, that vehicle usage is accurate and compliant with the benefit declared. Whether your fleet has 1 vehicle or 1000, Triplog streamlines a long-winded, out-dated manual process to make a more robust, efficient, cost neutral solution that keeps a business HMRC compliant. TRIPLOG VERSUS TRACKING Tracking is a term understood by most, but with quite negative connotations. Triplog is not a conventional tracking system. Yes, the vehicle is being tracked via GPS technology and data is being collected, but this data is only available to the driver until the driver decides otherwise. This solves the biggest challenge for GPS technology in cars used for business - privacy. Triplog gives the drivers full control over their privacy and with the strictest settings, all trips remain private until the employee submits their digital business mileage claim. Once submitted, the administrator only has access to the business trips; private trips continue to remain hidden. This system is the same as a conventional manual mileage claim except now all trip information is recorded digitally. For more information, on fleet privacy and GPS technology please refer to our Privacy Guide. ABAX TRIPLOG BENEFITS 10% reduction in total fuel spend 100% accurate records 100% tax compliance Significant administration reduction Increased productivity Profitable work vs manual paperwork? Reduced servicing costs for company car fleets Digital trip verification for HMRC Paperless - Lifetime digital records (HMRC require 6 years) Duty of care 100% privacy compliance

8 14 Mileage record guide// ABAX TRIPLOG SAVINGS 8. APPENDIX WHAT SAVINGS WOULD YOU EXPECT WITH THE ABAX TRIPLOG? Efficiency saving: 12 drivers and 1 administrator on 28,000p/a ( 14.46p/h) 2hrs administration saved per driver per month 9hrs administration saved per admin per month (45 mins per driver) (12 drivers x 2hrs) + 9hrs admin = 33hrs lost 33hrs x 14.46p/h = per month = 5, per year Fuel saving: 2000 miles per month at 0.21 per mile = 420 fuel bill per driver per month 420 x 12 drivers x 12 months = 60,480 = 6,048 per year (10% reduction in fuel spend) A. B. C. D. Compliance checks- CC/FS7a. Penalties for inaccuracies in returns or documents E. 480 (2017) Expenses and Benefits: A tax guide _16.pdf F. Total saving: = 11, ( per driver, per month) Want to know what your savings will look like? Contact us now or info@abax.co.uk to book a free consultation.

9 Design by ABAX Photos by Morten Rakke BR-TA-001/UK-EN/ PEOPLE TECHNOLOGY PRODUCTS The difference is ABAX ABAX UK Ltd, Allia Business Centre, ABAX Stadium, London Road, Peterborough PE2 8AN Peter House, Oxford Street, Manchester, M1 5AN Chandos Place, Covent Garden, London, WC2N 4HS +44 (0)