Are Your Mileage Expense Records HMRC Compliant?
-This article was last updated on 7 September 2022-
It goes without saying that tax-related business records need to be kept meticulously. One area that is being put under HMRC’s magnifying glass is mileage records. By keeping a closer check on your business’ mileage claims, you can also fish out any employees committing expense fraud and save your company money on potentially inflated claims.
HMRC aim to visit businesses every 6 years to carry out Employer Compliance Assurance visits. Therefore, it’s worth understanding how to keep your business mileage records in tip-top shape.
Here’s everything you need to know about HMRC business mileage claims for you and your employees.
Table of Contents
- What are Business Mileage Claims?
- What are HMRC’s Mileage Allowance Payments?
- Who is Eligible to Claim Tax Relief on Mileage?
- How Much Can You Claim For Business Mileage?
- Business Mileage Record Keeping
- What are the HMRC Penalties for Inaccurately Reclaiming Business Mileage?
- How to Make the Switch to Automatic HMRC Mileage Record Keeping
- Ready to Let ExpenseIn Help with Your HMRC Business Mileage Claims?
What are Business Mileage Claims?
Business mileage claims allow you to claim mileage tax relief on vehicles used for business purposes. This includes cars, vans, motorbikes, or bicycles. It applies to any vehicle you pay to operate yourself, whether leased or owned, as well as business vehicles.
This tax break isn't for your everyday journey from home to your permanent place of work. According to the HMRC, that counts as simply 'getting to work.' It does encompass any 'temporary workplace' to which you must go while working, however.
What are HMRC’s Mileage Allowance Payments?
Simply put, Mileage Allowance Payments (MAPs) are what you pay your employee when they use their own car for company purposes.
You are permitted to give your employee a set number of MAPs each year without reporting them to HMRC. This is known as an 'approved amount.' Therefore, it’s important to keep records of employee’s work mileage if they use their own vehicle for business.
HMRC provides advisory mileage allowance rates that your employer can use. How much you pay your employee per mile is up to you, however, but you must be aware of the HMRC’s rules regarding MAPs to see if you need to declare earnings or not.
(To find out more about VAT on mileage claims, read our article about demystifying VAT on mileage expenses.)
Who is Eligible to Claim Tax Relief on Mileage?
There are two main scenarios where an employee is eligible to claim tax relief on mileage:
If they are not paid a mileage allowance, they may claim MAP on all work miles at the advised mileage rates.
If their employer reimburses them for less than the approved amount of mileage allowance, they may claim tax relief on the "unused" portion of the mileage allowance for the tax year.
An employee has nothing to claim and is not eligible for MAP if their employer completely reimburses them for the permitted amount of mileage allowance for the year. Additionally, if they are paid more than the allowed amount of MAP, any amount received in excess of the advised rate for business miles will be taxed through PAYE. Therefore, they would not be eligible for MAP in this scenario either.
How Much Can You Claim For Business Mileage?
The mileage allowance relief is calculated using the HMRC-approved mileage rates. The current rates for 2022 are as follows:
For the first 10,000 miles, cars and vans pay 45p. After 10,000 miles, the rate is reduced to 25 pence per mile.
Motorcycles are paid 24 pence per mile, regardless of mileage.
Bicycles are paid 20 pence per mile, regardless of distance travelled.
Business Mileage Record Keeping
When recording business mileage claims you will need record of the date of travel and total mileage as well as reasons for the journey and the applicable costs.
You can find more information on those records below.
Date of Travel and Total Mileage
The date of travel for the claim should be recorded as well as the total mileage for the individual with the precise location recordings. It is desirable to actually have postcode-to-postcode details. One big mistake that employees make is rounding up their mileage distances.
Reason for the Journey and Applicable Additional Costs
It is also important to record the reason for the journey and whether any additional costs such as parking tickets or tolls were incurred. Knowing the exact nature of the journey can ensure that employees don’t claim for non-business journeys. HMRC don’t take kindly to employees claiming for private journeys. If this is the case, substantial fines and penalties may follow.
Travel to a ‘Temporary Workplace’ Only
Ensure that your employees are not including their daily commute to work in their expense claim. HMRC do not consider commuting to and from work to be reimbursable. Therefore, it may be wise to keep an eye out for consistently similar journeys to make sure employees are not including these.
What are the HMRC Penalties for Inaccurately Reclaiming Business Mileage?
It’s a business’s responsibility to keep accurate records that show the difference between business and private mileage on each vehicle.
If you fail to do so, either by reimbursing mileage in excess of the right amount or by reimbursing private mileage when you do not supply free fuel, you may face an Income Tax and Class 1 NIC penalty. Even if this is due to no fault of your own, your company might face a financial penalty of up to six figures if your staff make inaccurate claims on false mileage.
How to Make the Switch to Automatic HMRC Mileage Record Keeping
It may sound like a lot of daunting information, but there are precautions you can take to keep yourself on the right side of HMRC. One way to do this is to employ an automated real-time expense process, like ExpenseIn.
Companies using ExpenseIn for mileage recording can enforce automated policies in line with HMRC regulations. This can safeguard against any fraudulent claims by eliminating employee interference.
Setting Policies for Business Mileage Claims
For business mileage claims, employers can set policies such as needing to include postcodes. Our system can automatically calculate the distance between the postcodes using Google Maps. To take into consideration instances such as traffic, you can also set mileage distance tolerances so your employees have to be within a certain percentage of our calculated distance.
If an employee’s claim is not in line with these policies, then this will be flagged up when they go to submit their expenses. It will explain why the claim is invalid so that the claimant knows exactly how to rectify it. As this process is automated, it takes the hassle out of scrutinising expense claims once they have been submitted.
You can also configure your account with your company’s custom fuel rates. HMRC like to check that you are keeping tabs on employees who have exceeded 10,000 miles annually in their own car. With our system, you can enable mileage limits. When they have exceeded their mileage allowance, employees will no longer be able to access certain rates.
Ready to Let ExpenseIn Help with Your HMRC Business Mileage Claims?
It’s wise to make sure you are using an automated system that can keep thorough digital records of all of your expenses. ExpenseIn not only helps employers to gain complete visibility of their employees' travel data, but also allows employees to easily log their personal and company car mileage claims.