Are Your Company Cars HMRC Tax Compliant?

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HMRC have begun a crackdown on business mileage expense records, with organisations potentially at risk of eye-watering tax penalties. It is now as important as ever to get ensure that the mileage you are claiming back is accurate and your records are compliant!

Often the catalyst for an HMRC investigation is when they believe vehicle mileage has been overpaid due to inaccurate reporting, overestimation or fraud. The task of HMRC is to ensure that you pay the right amount of tax – so if there is an over payment of mileage it effectively means tax-free monies have been paid to an employee. 

WHEN IS A MILEAGE RECORD REQUIRED?

A mileage record is required when a vehicle completes a journey for business purposes. Every business journey must be accurately logged according to guidelines set out by the HMRC. The only exception to mileage records is if the Fuel Benefit in Kind (BIK) charge is paid on the vehicle and it becomes ‘fully-expensed’.

As experts, ABAX are in a unique position of working directly with clients undertaking business record checks. From all information available, we understand HMRC outline the following criteria for a mileage record to be compliant:

  • The vehicle driven
  • The driver
  • The date
  • Trip start and end location
  • The purpose (place/companies visited)
  • The start and closing mileage
  • Total business miles
  • The mileage rate offered

THE COST OF GETTING IT WRONG

Compliant usage of cars within the workplace is compulsory to avoid expensive HMRC penalties. To amend, HMRC will employ a penalty made up of two parts.

  1. Backdate FBIK to the vehicle and tax the business and employee accordingly.

  2. A £3,000 penalty to the business for an incorrect P11d. These penalties can be backdated up to 6 years.

EXAMPLE OF A TAX PENALTY

HMRC penalty calculations are extremely complex but to give a basic example, let us assume the following details: a 40% taxpayer has over-estimated their business mileage driving a car with a fuel benefit charge of £5,106. The penalty for that financial year based on that vehicle would be:

Employee: £2,042 Benefit tax
Business: £3,000 P11d fine + £705 NIC

Let us say HMRC backdated this fine for 6 years. That one employee would expect a tax penalty consisting of 6 year’s worth of fuel benefit charges; £12,252. The business, come off even worse, they owe £18,000 in P11d incorrect penalties and £4,230 in NIC’s – or a total of £22,230. Now multiply that across your entire car fleet…

PLEASE NOTE: This penalty is a very basic calculation. Other factors may include, for example, yearly scaling of the fuel benefit charge, discrepancies in fuel costs due to fluctuations in Advisory Fuel Rates (AFR’s) and even owed interest.

 

Don't fancy a hefty penalty? The ABAX Triplog will do the hard work for you and ensure that you are 100% tax compliant.