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HMRC crackdown on mileage records

HMRC has recently announced that between now and 2015 they intend to carry out 60,000 "Business Record Checks". The stated aim of these checks is to ensure that companies are keeping proper records. However, this is not simply a case of HMRC helping small businesses. Where records are inadequate, HMRC can levy penalties, even where there is no unpaid tax! These penalties can be up to £3,000.

Why is this important?

Owing to the tax cost of company cars, it has been the case for a number of years that many companies prefer to structure car provision by a combination of car allowances and reimbursement of the cost of business mileage. Although the tax free rates permitted by HMRC do not necessarily reflect increases in fuel prices (45p up to 10,000 miles and 25p thereafter, this option is usually still more effective than the traditional company car in most circumstances.

The mileage reimbursement approach is also used by many small company owners to recover the cost of their own business mileage.

HMRC are also likely to argue that mileage claims not supported by proper records should not be allowed as bona fide expenses. This will, in many cases, lead to additional tax liabilities for business (sometimes covering up to 6 years) with interest and further penalties to be added.

HMRC forecast additional tax collections of £13m next year, rising to £62m in 2014/15. Make sure you aren’t caught!

The key message to all businesses is to ensure :
  • That you restrict claims to genuine business mileage;
  • That you keep records of all journeys, including date, distance, start and finish points and purpose of trip;
  • If VAT registered, ensure you have sufficient receipts to cover the cost of all mileage reimbursed.
Finally, it should be part of all employment contracts that employees must provide these details in order to validate an expenses claim and enable it to be paid.