Fleets face six-figure tax bills on mileage claims

Chris Woods Blog

This months FleetNews reports of more companies facing huge six figure tax bills on mileage claims.

Businesses are being warned of a tax crackdown on mileage claims after a series of investigations into fuel and mileage payments.

Mileage audit firm TMC says it has identified five companies in the past month that are being investigated by Her Majesty’s Revenue and Customs (HMRC).

A bill for more than £700,000 in back taxes could be at stake for one of the businesses involved.

“Investigators see the whole area of mileage as low-hanging fruit in the current climate,” said Paul Jackson, managing director of TMC.

He believes that more fleets could find their records being scrutinised by HMRC as it hardens its line on incomplete or inaccurate mileage records.

In the cases seen by Fleet News, HMRC contends that the employers failed to check mileage claims properly.

Drivers were therefore able to overstate their business mileage and in effect received tax-free AMAP or Advisory Fuel Rate (AFR) expense payments for business miles they didn’t cover.

One tax inspector spent three weeks using an online route planner to check hundreds of mileage claims made by just eight drivers.

In practice, HMRC normally would look at the past six years, but in this case it examined the company’s records over the past four years, revealing some serious inaccuracies.

Fleet News has seen a mileage claim for 2,764 miles in a single month, but when it was checked by HMRC it should have only been for 1,798 miles – 35% less than the actual mileage claim which was submitted.

At an Advisory Fuel Rates of 12ppm, that equates to an over-spend over the course of a year of almost £1,400.

“What is frightening is the business had no idea,” said Amanda Philp, head of marketing at TMC. “They’ve got good records, detailed records that are filled in and signed by the appropriate people, and in a lot of ways this looks like a model fleet.”

HMRC is treating claims by the company’s 135 other drivers as similarly unchecked and has warned the business that it faces a potential charge of up to £200,000 in respect of tax-free payments it made for ‘phantom’ business miles.

One company concerned wished to remain anonymous, but told Fleet News that each claim it received was signed off by a line manager, so it had no reason to believe the mileages were incorrect.

“When we looked at the tax inspector’s comparisons and then learned of the amounts involved we were completely taken aback,” said the company’s finance director. “We were deeply disappointed at what had happened.”

“In the past, a firm in this situation might reasonably hope to be let off with a warning from their tax office to do things properly in future,” said Jackson.

“Now that the Government cannot afford to ignore even relatively small amounts of unpaid tax, fleets shouldn’t expect leniency if they can’t show properly audited records.”

As well as looking to recover PAYE and NIC on what they consider to be excessive claims, HMRC can also include interest and penalties for the company involved.

“Usually you find that it is only a minority of individuals who are systematically abusing mileage expenses,” explained Jackson. “But unless you can show that your records are adequately audited, those few bad apples will taint your whole fleet in the event of an investigation.”

David Goodall was the technical specialist for car benefits at HMRC before recently joining TMC.

He said: “Businesses need to be aware that HMRC is now very focused on the way they record and check mileage claims. They can expect to be challenged over any errors or omissions in their records that might have led, even inadvertently, to underpayments of tax on cars or fuel.”

But what does HMRC say?

Fleet News tried to ascertain the number of businesses HMRC has investigated for the possible payment of phantom business miles and how much money in back taxes it had received as a result.

However, having submitted a Freedom of Information request, we were told it was unable to provide any figures as too much work was involved.

Instead, an HMRC spokesman said: “HMRC has a responsibility to ensure that everyone pays the tax they owe and abides by the tax rules.

“Where people seek to consciously ignore or flout those rules to avoid paying the correct amount of tax, HMRC will not hesitate to take action.

Employers should have appropriate systems in place to verify that any business mileage claims made by their employees can be paid free of tax.

Poll reveals mileage audit split.

Fewer than one in two fleets (46%) carry out a mileage audit of their drivers’ claims, according to a Fleet News poll.

Apart from satisfying HMRC that mileages are not being overpaid, mileage audit can help drive down fuel costs and emissions.

We Can Help You

Our basic vehicle tracking solution allows you to track your vehicles mileages and to differentiate between business and private use to satisfy HMRC requirements.

Simple auto generated reports on movements including mileages and journey times offer complete protection as well as saving money on ever increasing fuel bills.

Call us today and ensure you are not the next target of a HMRC six figure fine!