Top Tips for Mileage Expenses

  1. Accurate mileage expenses are important, if for any reason you are estimating your mileage you may be over or under claiming. Under claiming means less money in your pocket and over claiming leaves you open to scrutiny from HMRC.
  2. For a claim to be accurate you should, as a minimum, have the date traveled; the start and end address; the total (actual) mileage; and be sure to be using the correct mileage rate.
  3. There are a number of different mileage rates available to use. In a nutshell:
    • Advisory Fuel Rates (AFR) is normally used by company car drivers provided with a car or cash allowance. These are set by HMRC and taken from a table consisting of fuel type and engine size. View the table here.
    • Authorised Mileage Allowance Payments (AMAP) are normally claimed by drivers driving their own car on company business. These are set in law and are currently 45 pence for the first 10,000 business miles in the tax year and 25 pence per business mile after that.
  4. AMAP payments are set in law and so they can be paid tax free. HMRC make it clear however that accurate mileage records need to be kept to prove the mileage traveled.
  5. Understand some of the “lesser” know rules: The “Lesser Than Rule”. Some business journeys will involve traveling to a location directly from home without visiting your office or base. Some journeys will involve returning home at the end of the working day without visiting your office or base. Many businesses use the “lesser than rule” meaning you claim whichever is lesser: The actual mileage that you traveled from your home to the location OR The mileage that you would have claimed if you had traveled from your base to the location.
  6. Where the payments exceed the amount of the AMAP, the excess over the AMAP is automatically chargeable to tax and will not qualify to be paid tax free. The employer will only need to report the excess over the AMAP.
  7. If an employee uses their own vehicle for businesses travel but are paid at a rate less than AMAP then they may claim Mileage Allowance Relief (MAR) EIM31330. This could mean you get tax relief (in essence money back from the tax man). A calculation can be found here EIM31350.
  8. There is no alternative or additional relief whereby, for example, employees may claim for actual expenditure incurred on business travel or purchasing, maintaining or running their car(see EIM31335).
  9. To ensure your claims are compliant it makes sense to have an approval process in place, particularly if you work for a large organisation that regularly processes a number of claims. This means a manager or someone with knowledge of the driver should check claims before they are paid out. It is important to give guidelines to these approvers as to what they should be checking for.
  10. Be sure to give simple and concise guidelines to those claiming mileage in relation to what is expected, what is acceptable and what is not acceptable. Also be sure to point out the consequences of committing mileage fraud.
  11. If possible create some simple reporting. It’s amazing how a system starts to self-regulate when drivers can see where they stand in comparison to their peers. Reporting on areas such as mileage, CO2, pence per mile, fuel spend are all possible with the right data.
  12. Offer rewards for careful and economic driving. If you are able to measure actual pence per mile (fuel costs / mileage) then create a competition whereby you reward drivers for the lowest pence per mile.
  13. Invest in a system that will take care of mileage for you. The PEAK mileage capture system has been developed following expenditure of hundreds of thousands of pounds and been tried and tested by many thousands of drivers. Systems like PEAK have been designed to make mileage, quick, simple ad accurate.
  14. Understand the risks. Did you know that if HMRC investigate and find fraud they could fine up to £3,000 per driver and go back 6 years just for neglect (even more for fraud)? On top of this, they would also want the tax due on any mileage that has been overpaid (mileage is normally tax free if accurate). The PEAK team have seen payments ranging from £128,000 for 10 drivers to well over £10 million for around 800 drivers.
  15. Understand the costs: the PEAK team recently came across a driver who claimed 30,000 miles more in a year than he actually traveled, which at 18 pence per mile came out to £5,400. This is an extreme case but consider that your average company car driver traveling 25,000 miles per year and overestimating by just 10 % (HMRC believes the average is around 25%). That equates to around £450 per year per driver Leakage of valuable cash from any business.
  16. Review regularly. Things change, technology, legislation, employees, vehicles and so much more. Check your drivers are claiming mileage for the right type of vehicle and not still claiming (say) 28 pence per mile for their old gas guzzler even though you supplied them with a hybrid 4 months ago where they should be receiving 18 pence per mile!. Check the legislation, mileage rates change as much as once every 3 months (AFR). Are you paying/being reimbursed the correct rate and are your systems regularly updated?
  17. Check what vehicles your drivers are in. At the current AFR rates the difference in mileage rate between a 1.9 diesel and a 2.0 diesel is 7 pence per mile. Check that your drivers have not forgotten what type of vehicle they are driving. We often find drivers who reimburse for private mileage driving apparently smaller vehicles and those claiming for business mileage driving apparently larger vehicles. Are they all fit for purpose? What are the Health and Safety implications of the vehicle(s) used?
  18. Low personal mileage: When undertaking client audits PEAK often come across incredibly low personal mileage on a claim. Certainly low personal mileage is quite possible and where it occurs it is no guarantee that expenses fraud has been undertaken, however it is worth considering against other factors. One example we came across recently was a driver who worked a normal 5 day week, claimed 50,000 business miles per week and only around 600 miles per year on personal travel. When we started to look at fuel purchases however the majority of fuel was purchase by filling the tank on a Friday and a Monday. So where was the full tank of fuel going over the weekends?
  19. Travel at weekends: Check to see if your drivers are claiming business mileage at weekends. It is possible that it is genuine but normally business travel at this time happens irregularly and is normally for short(ish) trips. Accurate records will show when, where and how far and can be an easy and quick basis to review accuracy.
  20. Traveling to the same places: You may expect employees to travel to see the same customers etc, but if they are regularly attending the same place ie for more than 2 days a week on average, this may be deemed by HMRC as their normal workplace (or one of them) and the mileage would then be taxable.
  21. Fuel card expenditure can include information that shows inappropriate expenditure is occurring. This might be the inclusion of items that are not fuel ie cigarettes/confectionery/the weekly shop, or even if the types of items are restricted, how much oil is being purchased and what fuel type(s)? Does the pattern show types and levels of expenditure that don’t ring true?
  22. Late claims that are made regularly can often reflect a lack of attention to detail. Rushing to get a claim in on time or after the deadline can mean that the claim is less accurate and more likely to have been estimated, leading to the type of issues and exposures already outlined.
  23. Receipts missing may also reflect a lack of attention to detail or lead to claims for items that haven’t been purchased, or maybe already claimed for in another period. Obtaining, keeping and submitting genuine receipts for each months claim should be easy and 100% compliant. If it isn’t and the failure is frequent this may be an indicator of other weaknesses and should be picked up on to avoid exposure to issues such as those already mentioned.
  24. Receipts for wrong period: Check that fuel receipts are for the correct period. It’s an easy mistake to make and can lead to over/duplicate claims.
  25. VAT receipts: Keep your receipts. If you are not using a fuel card that offers VAT approved invoicing you need to ensure you keep your obtain sufficient and accurate fuel receipts to support your claim for VAT incurred n the business fuel used. If you don’t you could be throwing away a claim/tax relief on 20% of the cost of your fuel bill.