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23/11/2009
Mileage tracking wake-up call issued to avoid HMRC scrutiny

Companies have been issued with a wake-up call to ensure they keep robust records of employees’ private and business mileage to meet HM Revenue & Customs rules.

The taxman says: “Providing that all of the miles of private travel have been properly identified, HMRC will accept that there is no fuel benefit charge, and therefore no Class 1A NICs liability.”

However, Fleet Operations has uncovered evidence of a signficant under reporting of private mileage at some companies. As a result, employees are not repaying the full cost of company-funded fuel privately.

Consequently, says Fleet Operations’ managing director Ross Jackson: “Under HMRC scrutiny I do not believe many employers will be easily able to provide a comprehensive breakdown of private and business mileage and prove that employees have repaid the cost of fuel used privately at the correct level.”

To help both employers and employees keep tabs on individual driver mileage, Fleet Operations offers Fleet Mileage - an online service, designed to remove the headache and hassle of managing business mileage and the expense reconciliation/reclaim processes.

Over the last decade, increases in fuel scale charges have resulted in both fleet and tax experts recommending that it is more tax-efficient for company car drivers to pay for fuel used privately out of their own pocket.

However, the latest HMRC data for 2006/7 - 2007/8 data is not scheduled to be published until March 2010 - highlights that 360,000 employees continue to be paying fuel scale charges on fuel used privately.

Nevertheless, that means that, according to HMRC data 510,000 employees have given up the ‘perk’ since tax year 1999/2000. 

In addition, on April 6, 2007 there were signficant changes to the benefit-in-kind tax treatment of vans and employer-provided fuel used privately in those vehicles.

Coupled with HMRC losing revenue from a large number of taxes due to the recession, and the likelihood is that officials will be scouring employee and employer tax returns to ensure there is no underpayment in any areas.

“Employees who make good their private mileage reimbursements will not be subject to scale charges. However, if HMRC detect an under payment then not only could employees be subject to the scale charge retrospectively, but companies may have to repay tax owed. Additionally, HMRC may look to recoup interest loss on the money owed,” said Mr Jackson.

“Also, once HMRC has got its claws into a business in one area then it may look more closely at other tax areas causing significant administrative upheaval and potentially large fines if any duplicity is uncovered.”

An analysis by Fleet Operations of one client’s fuel policy detected significant employee underpayment due to ‘low’ levels of private mileage being declared. As a result, of measures subsequently introduced repayments over the following 12 months increased by almost 300%.

Fleet Mileage enables employees to input mileage and journey data remotely and management to monitor each driver’s trips identifying business/private travel. By disclosing odometer readings following each business journey, straight-forward calculations can be made

Although, Fleet Mileage is chiefly designed to record company car travel it is equally adept at recording mileage data related to privately-owned cars driven on business to ensure the correct expense claims are made

Mr Jackson said: “Without an auditable mileage record it is very difficult for organisations and drivers to prove that mileage has been properly tracked and recorded and staff have repaid or been paid the correct amounts.

“Odometer readings before and after every work-related journey highlights business mileage travelled and the remainder is private mileage. A very visible journey record is created which will satisfy HMRC.”

In addition, the Fleet Mileage system can be directly linked to a company’s payroll department and integrated into an organisation’s expense regime to ensure that the correct reimbursement calculations are made and the amount of cash repaid by employees.

“Fleet Mileage means that drivers cannot fudge their private mileage calculations. It is important from an employee/employer compliance viewpoint that there is no private mileage underpayment and when the focus is on cost management companies do not want to find themselves still paying for employees’ private mileage - a ‘perk’ they thought they had withdrawn,” said Mr Jackson.