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  • HMRC mileage rates and rules on reclaiming business mileage

    In a recent YouGov survey surprisingly 56% of company car drivers were found to be unaware of HMRC rules on reclaiming business mileage. HMRC mileage rates are advisory and have remained the same for the past 12 years. It is not only important for any business to understand these rules but also to be aware that penalties for the inaccurate recording of business v private mileage enforced by HMRC can be significant.

    The HMRC using Mileage Allowance Payments (MAPs) which are defined as amounts other than passenger payments, paid to an employee for expenses related to the employees use of such a vehicle for business travel. 

    You can claim for business mileage for delivering or transporting goods, business visits to clients or partners and if you have to travel to a temporary work location for under a period of 24 months.

    From 6th April 2017 onwards, mileage payments can be given as part of optional remuneration arrangements. These payments are not exempt from tax and the employee is taxable on the amount of salary or cash pay foregone. 

    Pay in remuneration is essentially an arrangement which applies to an employee who is given the option of a company car, cash allowance or a salary sacrifice scheme to receive fuel or a mileage allowance free of income tax.

    HMRC penalties for inaccurately reclaiming business mileage

    When your company uses vehicles for business it has a duty to report the usage to HMRC and records must be kept to accurately show the difference between business and private mileage on each vehicle.

    If you were to fail to do this by either reimbursing mileage over the correct amount or by reimbursing private mileage when you don’t provide free fuel, then you could face an Income Tax and Class 1 NIC liability. Even though this could be no fault of your own through your employees making fraudulent claims on inaccurate mileage your business could face a financial penalty of up to six figures.

    With this in mind it is estimated that up to 60% of business drivers overestimate their business fuel claims, which accounts for a potentially large sum of overpayments going through your business each month. HMRC are all over this topic and will not hesitate to issue fines and penalties for the inaccurate recording of data in this area due to the fact that tax relief is available for travel in the performance of work duties, but not for private usage.

    There is also much confusion amongst employees in the difference between private usage (which includes your normal commute to work) and business usage of a private vehicle so mistakes are easily made.

    HMRC rules on reclaiming business car mileage

    Passengers and mileage claims

    Employers can provide an extra 5p per mile to drivers who have an employee of the same business as a passenger for work trips. In cases like these, payment is “approved” and do not need to be reported by HMRC. 

    AMAP rates for reclaiming business mileage

    Authorised rates for business mileage reimbursement (AMAP) for private cars and vans utilised for business use, are set by HMRC at 45p per mile for the first 10,000 business miles and then 25p per mile thereafter. However, if an employer reimburses in excess of this then they need to report this on a P11D so that the taxable reimbursement figure is clear.

    An employer can of course decide to reimburse above the AMAP rate, but if they do then they will incur an Income Tax charge on the excess. AMAP payments are set in law for this reason and so they can be paid tax free. In order for HMRC to keep track of taxable mileage it is a legal requirement that accurate mileage records need to be kept to prove the mileage travelled to ensure that businesses aren’t falsely receiving tax relief illegally. Such records are audited by HMRC and it is therefore important to have someone responsible for this and keeping a close eye on employee claims.

    In terms of reimbursement for company owned vehicles there are no statutory rates, just guidelines on Advisory Fuel Rates (AFR) which are published online. It is therefore up to the individual business what rates they offer.

    How to keep HMRC happy

    1. Do as HMRC auditors would do and check 10% of you mileage records. If more than 10% of the claims that your employees have recorded end in s ‘0’ or a ‘5’ then it is likely that claims are being rounded up and are not an accurate representation of the actual business mileage taking place.
    2. Check for employees travelling to the same places regularly.  If employees regularly attend the same place for more than 2 days a week on average, then HMRC may consider this as their normal workplace (or one of them) and the mileage to and from the location would then be taxable. You can find out more about what journeys are eligible for tax relief and which ones aren’t by reading the Governments Examples.
    3. Do you use fuel cards? Check the expenditure. Patterns in different levels of spending each month from the same employee can highlight possible inappropriate expenditure is occurring (cigarettes, confectionery, the weekly shop…).
    4. Check dates of fuel receipts. It’s easy to make a mistake and to put a fuel receipt in for the wrong period. Check your dates so as not to lead to duplicate claims.
    5. Adopt the ‘Lesser Than Rule’. Many employees will be found to travel straight from their business location (such as from a meeting location) to home, rather than stopping at the office base first or vice versa. This means that within this journey their normal commute to work has been absorbed. If you adopt the ‘lesser than rule’ you claim whichever is lesser: The actual mileage travelled from your home to the location, or the mileage that you would have claimed if you had travelled from your base to the location.
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