21 July 2020

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As working practices change, what constitutes claimable business miles could too, and to ensure HMRC is satisfied it is worth reviewing your processes and definitions, accountant and company travel tax specialist Harvey Perkins says. 

Most drivers claim business mileage, and their employers reclaim the associated tax but in recent times, due to Covid-19, this long-established process has seen a number of grey areas develop.

In the shifting environment many firms currently operate in, with employees now working permanently from home or from offices they would not usually go to, what exactly a ‘business mile’ is may have changed, which then has an impact on what can be claimed.

So that employees are not confused and claim the wrong mileage, with employers therefore claiming the incorrect amount of tax, and the potential then for HMRC to become involved in a review, it is worth looking at your processes and definitions. Harvey Perkins CTA, at company vehicle tax and benefits firm HRUX highlights the key areas you need to think about.

Three types of mileage – what are they?

There are three types of ‘miles’: business, commuting and private and each has a difference tax treatment depending on what you are driving (e.g. company car, van, private car etc).

1. Business

Essentially a business mile is a journey that is taken in the course of an employee’s work that cannot be classified as commuting, or private. Journeys to temporary workplaces (such as a client, or a different office), or to for tasks of limited duration (going to a site for three months) are examples of business travel. Employers can reimburse for business fuel free of tax and National Insurance Contributions.

From a car perspective, only business miles count, whereas for a company provided van the rules differ in that commuting is not treated as private and can be treated as business, provided there is only insignificant other use (e.g. popping to the shops on the way home from work). Any use of the van on a weekend would be classified as private mileage.

2. Commuting

Ordinary commuting is classified generally as any travel between home and a permanent workplace and in a car this is treated as private mileage.

3. Private

Private travel is between home/a place and any other place not associated with work. There is no reimbursement relief tax/or NICs.

“It sounds very simple and you can claim through Advisory Fuel Rates or through the cost of fuel if you have a fuel card, as long as you have accurately captured the private mileage,” explains Harvey.

Why you need to get it right

“In a review, HMRC often look at two aspects where fuel is concerned;

1. They will examine any reimbursement of expenses to the same place/ a regular place, and ultimately claim that place then is classified as a permanent place of work, when an employee has mistakenly thought it was a temporary workplace.

2. Check whether any repayments for private mileage have been made and check that private mileage is being recorded properly and accurately.

For both areas, HMRC will do this on a proportion of drivers and scale what they find against the rest,” says Harvey.

“Provided they have (even a small) reason to suspect mileage is being recorded inaccurately, they will be able to go back four more tax years beyond the open tax year, and can assess interest and penalties (usually around 30%, unless repeat offence or fraudulent). So, the penalties for getting what seems a minor liability wrong can soon add up to a significant amount of money.

“Businesses, often through no fault of their own because it is complicated don’t get it right, and HMRC look at this type of area, precisely because it is complicated and easy to get wrong.”

Permanent and temporary workplaces

What is the difference between a permanent and temporary workplace? This can be difficult to ascertain because everybody is doing something different, and especially so during and after the Covid-19 pandemic.

Obviously, as working practices change and more people work from home or satellite locations, companies are going to have to be careful they don’t fall foul of the regulations and start reimbursing employees for business travel everybody thinks is to temporary locations, when in fact it could be permanent.

“The areas of what is a permanent or temporary workplace can be complicated from a tax perspective. Everybody will have a different work pattern. So HMRC and Government have put rules out there, and there is a document that has around 30 pages of various examples or working practices and what can and cannot be claimed. I recommend all employers take a look at them,” Harvey says.

“The definition of a permanent workplace is if the employee attends it regularly for the performance of duties of the employment. So the majority of people going to an office is a permanent place of work, for example.

“A temporary workplace is somewhere where the employee goes only to perform a task of limited duration or for a temporary purpose. There are exemptions, but a lot of companies think something is temporary when in fact it is permanent. So, if employees have been claiming the same journey to the same place multiple times, that will raise a red flag for HMRC, even if the employer views it as temporary.

“What changes it from temporary to permanent? There are number of circumstances, and the main one is the 24-month rule. For less than that time, a location can be treated as a temporary workplace, although if the intention is to keep them working at a location for more than 24 months, it is classed as permanent from the point the intention is made, not at 24 months. This doesn’t necessary apply in the case of fixed term contracts.

“Another one is the Fixed Term Appointment rule; which includes places where the employee spends 40% or more of their working time. So two days a week at a location could be classed a permanent location but less than that, when it is not regular hours, could be claimed as business mileage. Care should be taken however, as if an employee went to the same office every Monday then this is regular and HMRC will classify that as a permanent workplace.”

“So if you have employees working from home that need to go to an office from time to time, don’t make it a routine – change the days and times they go,” Harvey adds.

“If employees are home-based, and go to different locations at different times, that will be classed as business mileage. When an employee has to perform substantive duties at home, and it is not a choice, then anywhere they go beyond those regular trips to the office they would be entitled to tax relief.”

“But if you have employees now working from home, but every Monday they go to the office to fill in paperwork or for a meeting, that regularity of travel would qualify that as a place of work and you could not claim tax relief for the journey. HMRC will look at expense claims and travel patterns,” he says.

Get reporting and communication with drivers right

“You must understand the manner in which you record private or business mileage. The biggest issue is making sure both employers and employees understand clearly what a business mile is and what is not, especially during this period of change and upheaval, because they could be claiming for mileage they shouldn’t, which is then picked up at a later date by HMRC, or not claiming for mileage they should,” says Harvey.

“Having a fuel card is beneficial because it is simple and convenient, you get automated reports and it simplifies the reporting to HMRC. When HMRC review, you must demonstrate an expense policy (defining what employees can claim, when, etc), VAT accounting process, a clear expense system, a clear approval process and somebody to sign off and the ability to view the records to prove what you did was legitimate and robust.”

See how Allstar Business Mileage Monitor can help you separate driver business and private mileage with a HMRC-compliant audit trail.

Useful links:

HMRC booklets and advice:

https://www.gov.uk/government/collections/expenses-and-benefits-for-directors-and-employees-a-tax-guide-480

https://www.gov.uk/government/collections/tax-and-national-insurance-contributions-for-employee-travel-490 

For further information on business miles: 

https://hrux.co.uk/2020/04/29/what-is-a-business-mile/

Disclaimer: This website has no affiliation with Allstar Business Solutions and the above statement should not be taken as advice.

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