Automating Mileage Claims in the UK

Triplog mileage tracking app automating claims in UK

In our last blog of the UK series, we discussed record keeping, management, compliance, and governance issues with the mileage tracking and claiming process. We’ve identified that manual processes aggravate these issues and make things expensive and risky for businesses and individuals.

So, today we want to explore the potential of automatic systems mitigating some of these risks and concerns with mileage reimbursement and tracking in the UK.

Issues with traditional/manual mileage claims in the UK

Reiterating the issues with manual mileage tracking discussed in our last blog:

  • HMRC non-compliance and penalties
  • Fraud
  • Scarcity of Information
  • Overpayment of Expenses
  • Time and Effort

Consider the following scenario: A courier company in the UK has drivers with their own vehicles and are not familiar with Excel. Therefore, the drivers enter their miles driven using outdated pen-and-paper mileage tracking options.

The employee enters the date, to and from locations, the purpose of the trip, miles traveled, and mileage rates. This may happen one month or two months later and most times entries on the expense claim is dependent on memory or guesswork.

Related: How To Know If You Qualify For Mileage Claim In The UK

The manager doesn’t have time to check a multitude of entries or just checks a sample and then simply approves in bulk.

When the claim is forwarded to the finance team, they do not have any evidence to reject the expense claim and may not even check the claim itself due to a lack of transparency in the manual system.

The finance team checks the totals, miles driven in the year, and mileage rates; i.e 0.45 & 0.25p. They then enter the accounting entry into their accounting software and make the payment.

The mileage amount may not go in the correct accounting period due to a lack of information if employees are submitting expenses a few months later.

You might wonder how long it takes for the expense reimbursement cycle to go from employee to payment. Usually, one hour or maybe two hours if the manager checks the validity of journeys and miles through google maps. How can the cycle be shortened to 15 minutes and reduce the margin of error or expense overclaim? The simple answer is mileage tracker apps.

Related: Issues With Claiming Business Mileage In The UK

Mileage apps

Mileage apps are smartphone applications that are designed to capture, record, and report mileage automatically. There are a few in the market varying slightly in the features they offer. The most basic features are pretty much the same across the board. Consider the following scenario:

  • App installed by an employee on mobile.
  • An employee simply drives. No requirement to Stop and Start the App. The employee can add the reason for the trip or identify it as a private trip.
  • An administrator can check the validity of the journey at this stage, either on a web dashboard or a spreadsheet report sent directly to the manager from the app
  • The approved administrator submits the data to accounting software and accounting entry is posted directly from the app through integrations
  • Payment is made to the employee.

We listed 10 problems with a manual system in our earlier blog. As illustrated by the scenario above, a lot of those inefficiencies can be avoided using a mileage app. Lets’ take a deep dive into this.

Avoid employee claim omission

Employees could miss out on claiming expenses, but a Mileage app keeps a record of every trip, so there is no chance of the employee of not claiming for a business journey.

Avoid false records

Employees will no longer need to guess the miles they drove or round up approximate miles. With the app, they will automatically keep updated and accurate records of miles driven each day. Even though manual edits to trips are sometimes possible, the employer can easily build in checks to avoid potentially unethical behavior.

Avoid Lengthy Process

In our last blog, we discussed the several steps involved with a manual system which created additional work for everyone involved. With an automated system, employees including members of the finance team, can focus more on value-added activities rather than spending hours entering and checking data.

HMRC Penalties

It’s very common for Limited companies to overlook HMRC penalties even though logging business miles is a strict requirement. It may be the case upon a tax inquiry that these companies may backtrack and try to enter mileage information for all journeys taken.

However, it is not possible to remember the miles and the purpose of each, and every journey taken. Therefore, the company risks a fine of up to £3,000 for not keeping proper records.

Related: Case Study: Business Mileage Tracking In The UK

Mileage apps provide irrefutable evidence of journeys taken. It gives HMRC confidence there is a robust system in place to capture both business and private miles accurately. HMRC is less likely to investigate the business miles logged in using an app than any manual logs.

Using incorrect Mileage Rate

A smartphone mileage tracking app can calculate mileage based on HMRC advisory rates and work out if the number of miles has exceeded 10,000 miles at the lower mileage rate of 0.25p automatically. It’s quite easy on a manual system to still pay employees 0.45p per mile when exceeding 10,000 miles rather than 0.25p

Private Trips

Employers can see if the routes were changed from the detailed mile logs created by the app for each employee. An employee may claim the whole of a trip when part of the trip was private and not claimable.

A hidden benefit is the kind of governance and control employers gain over business-related trip expenses. The app can be used to monitor the employee if there are concerns. However, to protect privacy rights, most apps have the ability for employees to label trips as private.

Expenses Timing

Employees submit expenses at different times. Accountants prefer information on a timely basis to ensure the accuracy of accounts. 

Using a smartphone mileage tracking app can ensure the mileage data is not only accurate but also timely. In addition, management finds on-time reporting of mileage-related expenses invaluable since reimbursement costs of mileage form one of the biggest cost brackets for any business.

Reporting

Management must have good reports and analytics available to make key decisions to save time and costs. There are myriad of reports/KPIs within mileage tracking apps.

For example, driver comparison, personal vs. business miles, top 10 trips in terms of time and distance, route optimization, etc. There is much more information readily available to cut fraud and cut costs.

Benefit in kind

For companies in the UK, there are tax repercussions of paying for personal miles. This can be easily avoided through the use of mileage apps that capture details of every journey including personal trips.

It enables Finance to work out personal mileage and deduct the expense from the employee at the time of payroll. In addition, having a robust system to monitor and maintain mileage records gives HMRC more confidence. Therefore, HMRC is unlikely to investigate any further.

Related: Mileage Allowance – A Simple Guide (UK)

Without automatic and accurate tracking using apps, employers risk paying for private mileage of their employees. This results in a fuel benefit in kind charge as well as penalties.

Mileage Limits

With real-time information, Finance can have more control over expenses and make informed business decisions. In our last blog, we discussed how crossing mileage limits on leased vehicles is a common issue for many businesses.

A smartphone mileage tracking app can avoid this by providing real-time key metrics about drives. A mileage app only costs less than £5 a month but the benefits can be multiplied tenfold. It is an essential piece of software for both small and large businesses.

By making tax digital and driving towards automation, a mileage app will streamline processes bringing significant time and cost savings. To learn more about TripLog’s industry-leading mileage tracker app and company mileage features, schedule a complimentary live web demo, or visit our pricing page.

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Issues With Claiming Business Mileage in the UK

Triplog mileage app UK business mileage

When it comes to mileage tracking and mileage reimbursement in the UK, there is a multitude of ways one can do it, no matter if you’re a business or an individual. Every method has its pros and cons. Today’s blog explores the various issues of working with the basic manual method employed.

Mainly, we will explore the process of mileage tracking and analyze the issues/roadblocks to efficiency. Part 2 of this series will take the insights explored in today’s blog and analyze the cost, value, and benefits of using automatic app-based tracking.

Record Keeping

The usual way of keeping records has been to list the mileage either on an expense claim, spreadsheet, notebook, or logbook with the following information:

  • The date
  • The purpose of the trip
  • The start and end locations
  • Client/Company visited
  • Miles driven

This has been onerous, time-consuming, and burdensome for many, especially those that travel on a regular basis that has their own vehicle i.e. courier drivers, salespersons, etc. This system is inefficient and archaic leading to the following problems:

Employees’ Claims Omissions

Working out business mileage may be done at the end of the month and it’s difficult to remember the journeys taken, miles completed, clients visited, etc. Employees may not list all their travel and miss out on claiming their deserved reimbursements from the employer.

Related: Automating Mileage Claims in the UK

A survey by YouGov found that 56 percent of company car drivers are unaware of HMRC rules on reclaiming business mileage. For example, many employees are confused about the definitions of permanent vs temporary workplace which is needed in order to make the necessary mileage expense claims. Some of these can be mistaken as falsifying expenses when the reality is simply a lack of training and/or awareness

False Records

Employees likely guess the number of miles (including round it up than down) as she/he is unlikely to look up the exact distance a journey took on a sat nav or Google Maps. Often it is difficult for the expense approver and finance team to know if the mileage claims are genuine.

Not only is it time-consuming but also resource-dependent for the approver to individually check the miles on a calendar (if there is one) and/or calculate the distance on Google maps.

According to a study conducted by Soldo Credit Card one in five employees falsifies expenses. Other similar studies bear the same statistics. Inflating mileage claims is very easy when drivers track their mileage with outdated pen-and-paper methods.

An employee can add fake trips or simply add a few extra miles on each trip which does add up if there are multiple trips each day. These types of errors usually cost organizations thousands of pounds each year, as all the mistaken/falsified trips do add up.

Lengthy Process

Manual tracking is very time-consuming and lengthy. Hours are wasted on record keeping and management. Let’s take a typical scenario:

  • Employee logs mileage which can take some time if traveling every day. Manually entering the details required as per HMRC requirements can be tedious.
  • Employer Checks and Approves Expense Claim
  • Finance Department makes an accounting entry in the Accounts package

Even for one-person companies, there is still the need to list the mileage with dates, etc. This whole process in pen and paper takes away from time employees and managers can better utilize on tasks that add value to business instead.

HMRC Penalties

HMRC can issue fines up to £3,000 for not keeping proper and accurate records. A Sole director of a limited company may not have the inclination or time to log each trip and therefore could risk a possible fine and mileage expenses being disallowed.

Using Incorrect Mileage Rate

As covered in our previous blog, if the employee goes over 10,000 miles, then 0.25p should be paid. However, for that, the company needs to log the miles correctly and inform the employees about the proper mileage rates. Again, there is a risk the company will pay 0.45p per mile instead of 0.25p, especially in cases where the employee inflates the miles.

Related: Mileage Allowance – A Simple Guide (UK)

Private Trips

An employee could go on a business trip but makes personal trips on the way or claim for a trip to his or her permanent place of work. Employees unintentionally could claim the mileage for the round trip. As a result, the employer ends up paying extra for this mistake.

Wrong timing of expenses

HMRC requires timely bookkeeping of mileage records to improve accuracy. However, employees submit expenses at different times, sometimes several months after an incidence.

Business mileage can be a significant component of expenses and could potentially mean under or overstating expenses as the accountant does not have up-to-date information.

Reporting

To save costs, accountants must have detailed information. But spreadsheets, logbooks, and notepads make it difficult to decipher anomalies and potential fraud. Manual capture of information restricts trend reports. For example, the following metrics are difficult to capture with manual logs.

  • Carbon monoxide output
  • Miles per Driver (Highest to Lowest)
  • Private Mileage
  • Drivers Mileage Limits
  • Optimization of routes

Fuel Benefit in Kind

If the company does not have proper systems in place and is reimbursing employee private mileage on company vehicles, then it could result in a benefit in kind for the employee on the fuel provided (if the employee is not reimbursing the employer for private mileage).

If HMRC picks this up the employee would become liable for the benefit in kind and the company faced with Class 1 NIC rate of 13.8% plus heavy penalties for failure to submit a P11d form. Further charges could be imposed for not keeping proper records.

Mileage Limits

Some leased vehicles have mileage limits. For every mile that exceeds the limit, it can end up being very expensive. Unless the business checks the Odometer on a regular basis then the chances of exceeding the mileage limits are high.

Related: Case Study: Business Mileage Tracking in the UK

Conclusion

As you can see, management, compliance, and governance with tracking business miles for both individuals and businesses with manual processes can be a major hassle and surprisingly costly. You might think buying an app or an enterprise solution may be expensive but the costs of maintaining manual records may be higher if you consider the HMRC fines and savings both in terms of time and money.

In our next blog, we talk about how automating the process can be well worth the annual price tag. To learn more about TripLog’s best-in-class mileage tracker app and company mileage features, schedule a complimentary live web demo, or visit our pricing page.

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How To Know if You Qualify for Mileage Claim in the UK

Triplog mileage tracking app UK business mileage

Welcome to our UK blog series! The next few blogs will be focused on our UK audience.

We will start this series off with a blog going through some important considerations and the regulatory environment for company mileage tracking. The author of these blogs is Sash Dublish, an accountant & TripLog consultant based in the UK.

Watch out for the next few blogs from our guest contributor in the coming weeks. Let’s dive right in!

Business Mileage in the UK: Business mileage Methods & Rates

Employees can claim expenses including mileage without any tax implications that are wholly and exclusively for business. Travel from home to a permanent workplace is not an allowable expense for tax purposes. However, travel from home to a temporary workplace is an allowable expense.

What is a temporary workplace?

‘A workplace is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose”.

What is a permanent workplace?

A permanent workplace is where that person attends “regularly” for the performance of the duties of the employment. Claiming expense for travel to visit suppliers, clients or customers from both a temporary or permanent workplace is allowable. Travel from home to Suppliers, Customers or Clients may be allowable in some circumstances

There are some caveats where employees visit a workplace for more than 24 months and HMRC will consider this as a permanent workplace and therefore unable to claim the expense without any tax implications. In addition, where a salesperson covers a particular area, the whole area may be deemed to be the permanent place of work and cannot claim from home to the area but possibly claim travel within the defined area.

Limited Company

An employee including directors of a Limited Company using their own car can claim mileage based on Approve Mileage Allowance Payments (AMAP) issued by the government (see table below). The mileage limits run from 6th April to 5th April each year.

TransportFirst 10000 miles (p)Over 10000 miles (p)
Car or Van0.450.25
Motorbikes0.240.24
Cycles0.200.20

The above mileage rates consider the following:

  • Fuel
  • Repairs
  • Insurance
  • Vehicle Excise Duty
  • MOT
  • Depreciation

The Mileage Rates have been constant since 2011/12 despite petrol/diesel prices increases.

Sole Traders

As a sole trader, if you use a car or a van even if partly for business, you can claim deductions on those business miles traveled. You can do it in two ways 1. The Mileage Method and 2. Full Cost Method. In addition, Sole Traders have a choice of claiming for the costs of fuel.

  • Mileage Method This is the same as for Limited Company stated above. Using the AMAP rates mentioned earlier, Sole Traders can claim tax deductions.
  • Full Cost Method Alternatively, sole traders can claim the cost of running any car for business use by tracking the total cost.

Some costs that can be claimed back are as follows:

  • Capital Allowances (cost of the vehicle)
  • Insurance
  • Vehicle Excise Duty
  • Repairs
  • MOT

Deduct private use based on private mileage % as a proportion of total milesWhen starting as a sole trader it is important to choose the most profitable method from the outset. The only possibility of changing methods is if the vehicle is replaced.

The number of miles and vehicle cost will have a bearing on the decision on the method to use and some number crunching is required to work out the most tax efficient method. While the full cost method may be more lucrative now, a long-term approach should be taken if the number of miles traveled is significant each year.

Company Car

If the Car is deemed under the company, then only reimbursement allowable is for the actual fuel element which is dependent on engine size and fuel type. The Advisory rates below are used to make the claim.

Engine sizePetrol – amount per mileLPG – amount per mile
1400cc or less12 pence8 pence
1401cc to 2000cc15 pence10 pence
Over 2000cc22 pence15 pence

These rates are updated quarterly and do fluctuate. A Company car is taxed as a benefit in kind (tax form P11d) both on the use of the car and private consumption of fuel. Employees can be given a fuel card instead than claiming the advisory fuel rates but should reimburse the employer for any personal miles taken to prevent a fuel benefit charge.

Please note the Advisory Fuel Rates only apply to Cars, not Vans. Rates used are from December 2018 and for illustration only.  Please visit the website below for the latest advisory fuel rates https://www.gov.uk/government/publications/advisory-fuel-rates.

Conclusion

So, there you have it. Hope this blog demystifies some of the tax claim processes for business vehicles.

In our next blog, we are going to focus on the issues that individuals, businesses, and their accountants are facing when it’s time to track the miles and have their records ready for making claims. In addition, watch out for part 2 of the series where we’ll take a deeper dive where the focus shifts from issues to critical solutions.

The best way to track your mileage for tax deductions is with a modern mileage tracker app like TripLog. Whether you’re self-employed or need a company mileage tracker to handle your mileage reimbursements, there’s no better tool than TripLog.

Get started today by looking at our pricing, or schedule a complimentary demo request today. Thanks for reading!