How improper use of company vehicles can affect you financially

Light commercial vehicles (vans) within the workplace are governed in accordance with taxation policy and regulation outlined by HM Revenue and Customs (HMRC). With an ongoing focus on compliant usage, subjective grey areas in legislation and eye-watering tax penalties; it is vital that a business and its drivers address how they use their vans day-to-day.

Anna Edwards

ABAX are vehicle tracking specialists and following a recent survey, they shockingly discovered that over half of employees who drive a vehicle for business purposes are unaware of HMRC regulation and risk tax penalties because they are misusing their business vehicle.

In the UK,  99.8% of business-owned vans are on a ‘nil-benefit’ system. This system is chosen because it is a simple and cost effective way to operate a van fleet. On a nil-benefit system the van should only complete business trips, insignificant private trips and commutes. And here lies three problems for a business: 1. How can you stop your fleet being misused? 2. What does the term ‘insignificant’ mean?,  3. What happens if your drivers complete significant private trips?

Problem 1: How can you stop your fleet being misused?

As completing significant private mileage on a nil-benefit system is not allowed, it is in HMRC’s best interest to make sure a business does not choose this system and exploit it. Therefore, a business must prove to HMRC that no significant private journeys are taking place. To clarify, it is not up to HMRC to prove you are misusing your fleet, it is up to you to prove that you are not! HMRC recommend that you achieve compliance by:

  1. Keeping a detailed mileage record of all trips

  2. Implementing a HMRC compliant vehicle policy

  3. Using a vehicle tracking system

If you are not are implementing all three recommendations, then your business and your drivers may be at risk from HMRC penalties!

Problem 2: What does ‘insignificant’ mean?

To help understand the term ‘insignificant’, HMRC provide a definition and some “real-life” examples. They refer to insignificant as “Too small or unimportant to be worth consideration”, with the examples of:

  • Taking an old mattress to the tip a couple of times a year

  • Making a slight detour to purchase a newspaper at a local shop on the way to work

  • Calling in at the dentist on the way home from work

However, these examples are very subjective. What you judge to be insignificant may be very different from your drivers or a HMRC inspector; which is not ideal in legislation. Welcome to a HMRC grey area. The best thing you can do is be clear in your vehicle policy what trips can and cannot be taken!

Problem 3: What happens if your drivers complete significant private journeys?

Let’s say that you have one driver who has been caught by HMRC completing significant private journeys in a van that is not taxed to do so. They AND you now face a tax penalty, a penalty that can be backdated for up to 6 full years. The penalty consists of the following:

Business Penalty
PenaltyCostMultiplier (no. of years)Total
Incorrect P11D£3,0006£18,000
Undeclared NICs£5506£3,330
Undeclared NICs penalty£5506£3,330

Employee Penalty
PenaltyCostMultiplier (no. of years)New Column 1
Undeclared BIK & FBIK (40%)£1,5936£9,558

Yes, those tables are correct. One driver, completing unauthorised trips and the total penalty could exceed £35,000 - An eye-watering amount that will have a huge impact on any business.

For problems so easily fixed, it is worth the risk?

HMRC have implemented a task force with the sole purpose of recuperating lost benefit-in-kind taxation. They are doing this by increasing their roadside vehicle checks and business records checks (BRCs). One of their most effective methods is to take photographs of vans found in public car parks outside of usual business hours, and then compare these vans to the records of the business. Additionally, as HMRC continues to go digital, technology is shaping the way they do things and they are becoming more effective. 

It is easy for a business to take the “this won’t happen to us” approach. But not taking action is exactly what happened to a Cambridgeshire-based engineering company. An unexpected BRC took place and it was discovered that some manual mileage records of the employees were estimated and inaccurate. They were fined by HMRC and promptly took action, implementing a digital solution to improve accuracy.

A huge problem regarding detailed mileage records is they are time-consuming and extensive. To be 100% compliant, there are 14 pieces of information that the HMRC require:

  • Vehicle details including: vehicle registration, make, model, fuel type and engine capacity

  • The driver

  • The trip date

  • The trip start and end location including postcode

  • The purpose (place/companies visited)

  • The start and closing mileage

  • Total business mileage

Recording all this information with pen and paper accurately is not practical for a profitable business. So just as HMRC are going digital, businesses are taking advantage of technology and implementing compliant vehicle tracking systems to record this information automatically and accurately. This immediately ticks two of the three HMRC recommendations, and provides a business with more control, reduced risk and improved fleet efficiency, so much so the investment is likely to be cost neutral. Now all you need is a compliant vehicle policy. Book a free demo to the right and we can show you the ABAX System today!

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