Mileage Claims And Record Keeping

We have previously written articles about the importance of record keeping when it comes to substantiating mileage claims included in businesses’ accounts.  This is applicable equally to mileage claims made by sole traders, partners in partnerships, directors in limited companies and indeed employees.

A recent article in our professional press detailed an enquiry that was launched by H M Revenue and Customs (HMRC) into a limited company’s PAYE affairs where they tried to argue that, because of the lack of written evidence, a fuel benefit arose on the director for private use of the company’s van and that a mileage claim made by the director for the business miles travelled in his own private car were not allowable and should be taxed on him as a salary payment and therefore liable to PAYE Income Tax and National Insurance.

As a brief recap on the rules in this situation (unfortunately due to space constraints we cannot cover again the detailed rules regarding mileage claims):

  • A taxable benefit and fuel benefit can arise on an employee or director for their use of a company van unless one can demonstrate that there is no more than insignificant private use of the van;
  • In the case mentioned above, business mileage was claimed by the director of the company at HMRC’s approved rates (currently 45p per mile for the first 10,000 business miles travelled and 25p per mile in excess of that) and HMRC’s guidance states that detailed records are required to substantiate such a claim, including details of the destination visited, who was visited and why and the number of miles claimed.

In the case in question HMRC accepted in principle that the details provided by the director in reply to their initial enquiry did point to no more than insignificant private use of the van, but because there was no written evidence proving that there was no (or insignificant) private use they stood by their original determination.  They even went as far as to suggest that the company could fit a tracking device to the van to monitor any private use.

In relation to the mileage claim made by the director, HMRC did not accept that a sample record of business miles travelled for a more recent month (while the investigation was ongoing) was sufficient to substantiate the historic claims.  This was despite the fact that the director in question had a relatively regular pattern of business miles travelled.

As the enquiry progressed, the adviser acting for the company and the director pointed out to HMRC that there was no statutory requirement in law to maintain written records and that HMRC’s guidance is just that – it does not carry the force of law.  The adviser also pointed out that, in this case, there was only one director of the company who was also the sole shareholder so for him to produce something in writing and authorising his own mileage claims would not actually demonstrate a control.

In the end HMRC did back down on the enquiry and their original determinations, but only after an extended period of correspondence between the client, adviser and HMRC themselves.

This case further demonstrates the importance of maintaining written records for any mileage claims or any claims that private use of a company van is insignificant, or indeed reimbursement to the company for any private miles travelled in a company vehicle where all the running costs etc are borne by the company.  Similar comments also apply to the evidence required to substantiate that “pool cars” are indeed just that and that a taxable benefit should not arise on any employee or director for the use of that car.

We would suggest that a detailed mileage log, as referred to above, is kept for all mileage claims made by directors or indeed private use adjustments made by sole traders and partners of partnerships and that this is maintained contemporaneously.  When it comes to mileage claims made by sole directors of limited companies it may be worth considering appointing a husband or wife as company secretary and asking them to approve the mileage claims as some form of third party control and it would always be best practice to try to reconcile mileage records back to regular milometer readings of the vehicle in question.

In the case referred to above the client had taken out a form of fee protection insurance with their adviser, so fortunately they did not have to bear the cost of their adviser’s time spent dealing with the enquiry which had run to thousands of pounds.  We would always recommend to clients that they consider similar insurance cover and we do offer to clients a form of fee protection insurance and we can provide further details upon request.

The above is for general guidance only and no action should be taken without obtaining specific advice