Mileage Claims

That Taxman has begun to question employee business mileage claims, in search of underpayments of tax. You can defend yourself from this attack, now and in the futures.

Congestion

Due to congestion quite often the direct route is not the quickest. To get to your destination on time you may take an alternative route to miss jams, roadblocks or any other obstructions and claim for the exact miles driven, even if it means a slightly larger expense claim. But how can you be sure that this hasn’t been rounded up a little to add an element of profit?

Honesty

If you’re wondering how honest your employees are then you can sure as hell bet the Taxman is doing the same. For every ‘generous’ expense claim it costs the business money, and will also cost you extra tax and NI if the Taxman thinks extra miles have been claimed for. The Taxman will search for any inflated amounts in an employee’s expense claim during an employer compliance review. Even the smallest amount of ‘over-compensation’ can lead to a large tax increase when multiplied across many staff.

Measurement

The Taxman uses inaccurate means to estimate how far one site is from the other, he will often do a straight line between two points on a map, which of course doesn’t include any curves or corners. So don’t be afraid to criticise his measurements if he tries to assess you. It’s a good idea to use a website such as the AA (which gives more accurate mileage figures) to support your case.

Employees don’t have to be paid only for the shortest road distance between two points. Providing that the entire journey is for business and there are no personal diversions then the total mileage claim is appropriate.

Advice
You could set standard mileages for journeys that are used frequently, such as between two sites, or to regular customers. This makes it easier for mileage claims and also means that the employee doesn’t have to look at the milometer every trip. It also makes it harder to exaggerate an expense claim, which in turn reduces the tax risk of overpayments.

It is a good idea to make some reasonable distance margins for common journeys. If the Taxman challenges your employees mileage claims then you can show him your policy regarding the boundaries of what is a reasonable distance to claim.

Vans

The benefit-in-kind rules change for company owned vans from April 6th 2007, many employees are likely to choose to run their own can and claim expenses for business mileage to avoid a taxable benefit for private use of £3,000 per annum. In these cases it is an even better idea to have standard mileages set for common routes then it is now. It will also stop the Taxman implying that employees are making excess mileage claims. Why not get ready for this now?