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 over payment of mileage it effectively means tax-free monies have been paid to an employee.
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’.
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
THE COST OF GETTING IT WRONG
Compliant usage of cars within the workplace is compulsory to avoid expensive HMRC penalties. 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.
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 + £705 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.
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