The Miles Consultancy

Firms face six-figure back-tax bills and fines for payments on 'phantom' business miles

Fleets have been hit by a wave of investigations into fuel and mileage payments, reports business mileage audit firm TMC.
Paul Jackson, Managing Director of TMC, warned: “It's open season on unaudited mileage. We have evidence of inspectors going to extraordinary lengths to uncover false or missing reports.
“HMRC is looking for mileage reporting irregularities because it sees them as low hanging fruit in terms of potential unpaid business taxes. It’s not difficult for local inspectors to check firms’ records. If they find gaps or anomalies, the firm could face a potentially huge fine as well as having to pay the back-tax.”
TMC has come across five on-going cases in the last four months. More than £2,000,000 in back taxes and fines could be at stake in total for those five businesses involved.
“Businesses need to be aware that HMRC is now very closely focused on the way they record and check mileage claims. They can expect to be challenged over any errors or omissions in their records that might have led, even inadvertently, to underpayments of tax on cars or fuel,” said Mr Jackson.
In the cases seen by TMC, HMRC contends that the employers failed to check mileage claims properly. Drivers were therefore able to overstate their business mileage. In effect, they received tax-free AMAP or Advisory Fuel Rate (AFR) expense payments for business miles they didn't cover.

One tax inspector spent several weeks using an online route planner to check hundreds of mileage claims made by 20 drivers. These checks, which went back more than four years, allegedly revealed inaccuracies that usually resulted in too many miles being claimed.
HMRC is treating claims by the firm’s 135 other drivers as similarly unchecked. It has warned the business that it faces a potential total charge of £200,000 in respect of tax-free payments it made for 'phantom' business miles.
Although the company could support past expenses payments with detailed records of journeys, it was unable to satisfy HMRC that it audited claims adequately.
Paul Jackson said: "In the past, a firm in this situation might reasonably hope to be let off with a warning from their tax office to do things properly in future. In today’s economic situation, the Government cannot afford to ignore even relatively small amounts of unpaid tax. Fleets shouldn't expect leniency if they can't show properly audited records.
"Businesses need to realise that mileage recording by itself is only half the battle. Unless you also audit your data you're simply ensuring that your business is an obvious target as far as HMRC are concerned. Whatever you unwittingly pay for phantom business miles will double if the taxman comes along and decides to audit your records for you."
Mr Jackson said his company was working with the firm in question to help it to mitigate HMRC's estimate of overpaid mileage expenses. The company now uses TMC's Mileage Audit system, which proactively monitors driver inputs for the tell-tale signs of misreporting.
“We’re very happy to talk to fleets about ways that they can protect themselves against this kind of thing,” he said. “Usually you find that it is only a minority of individuals who are systematically abusing mileage expenses. But unless you can show that your records are adequately audited, those few bad apples will taint your whole fleet in the event of a tax investigation.”