Managing a vehicle fleet isn’t easy, from dealing with everyday problems to ensuring the logistical needs of the business are being met, especially in a period of growth. The company may not be able to run the fleet at its optimum level from a cost and tax perspective and risks non-compliance by not keeping proper records or paying the right amount of tax. HMRC view mileage as a high risk area and would evaluate how the company deals with business and personal mileage by reviewing its systems, processes and controls. The Company would be expected to substantiate any mileage claimed. For example, date, from and location and why the travel was taken. This is onerous and takes time from an employee and employer point of view. A manual system is inefficient and time consuming for the company as a whole
Mileage Tracking Case Study
Supermarket Ltd has a fleet of 500 Lorries where mileage is paid by fuel cards. It has 500 Company cars paid by fuel cards (with different engine sizes and fuel electric/petrol/ diesel) and also reimburses on average 500 employees for business mileage on a monthly basis and relies on employees to mark personal travel which many fail to do so.
Currently it doesn’t request employees to keep a log of business miles and reimburses employees who have personal cars through spreadsheets.
It also has come to the finance department attention that personal car owners may have overclaimed when submitting expense claims. It is also concerned that company car owners have been using the car for personal use but has not been declared which may result in additional work as well as increase in tax for employee and employer. It cannot cope with the volume of 1500 vehicles especially with the monthly VAT submissions and dealing with different engine sizes and fuel types as the advisory fuel rates change monthly. In addition, the P11d process is cumbersome and lot of the time is trying to find out the information on car value, engine size etc
Furthermore, management are seeing increased fines in speeding and accidents. The company has outlined issues below
1) HMRC requirement to substantiate every business mile even those spent on fuel card. Cannot automatically assume all miles are business.
2) Manually claiming VAT on mileage based on advisory fuel rates with added complexity as VAT claim depends on engine size and type of fuel as well as the month where the advisory fuel rates on fuel may change month by month. Risk claiming VAT on private fuel and end up with a scale charge. Employees sending in fuel receipts which means more paperwork.
3) Risk wrong mileage rate being used which will result in increased costs as employees may claim 0.45p when the correct rate should be 0.25p. If pay more than Approved Mileage Allowance Payment rate then it becomes taxable on the P11d.
4) Unable to determine private Journeys therefore increase costs and risk of fuel benefit charge on the employee. Employees may be going on private trips in company’s time which is a double whammy.
5) Possible risk of fraud from those with personal vehicles with claiming for factitious journeys or claiming additional miles. Rounding up trips seems common and inadvertently claim for private trips like from home to contracted work place or stopping en-route for private activity.
6) No KPI data available like cost per mile or analyzing data on route optimisation.
7) Cannot monitor Drivers behavior.
8) Cannot track whereabouts of vehicle.
Company Decides to Install Business Mileage Tracking Device
1) Mileage is captured automatically from and to and number of miles. Employees can add information and mark their private journey. It can also upload fuel receipts.
2) Company deducts personal mileage from the Salary of the employee so there is no fuel benefit or VAT scale charge.
3) Facilitates vat claim as the finance department can download a report with the VAT calculated on fuel based engine size, fuel and month
4) Data when available can check for obvious errors and fraud. For example, home to place of work claims or private trips.
5) KPI data available to reduce costs. Able to monitor the length of journeys and miles – reducing costs by advising the driver of the optimum routes to take in future. Cost per mile analysis including why journey is taken longer or costing too much
6) Track vehicles and help logistics and reduce time for deliveries. Improved utilisation of employee time.
7) Analyse driver’s mileage consumption and encourage better driving lower fuel costs 8) Monitor driver’s behaviour including speeding. Speeding can increase likelihood of accidents and fines
9) Lower Fuel Costs will result in reduced C02 emissions
10) VAT receipts stored electronically rather than dealing with thousands of receipts
Costs Saving For Mileage Tracking Expense
Lorry travels 100,000 miles per annum
Company Car 35,000 miles per annum
Personal Cars 20,000 miles per annum
Lorries = 500 * 100,000 *5% * £0.55 = £1,375,000
Company Cars =500 * 35,000 * 5% * 0.15 = £131,250
Personal Cars = 500 * 20,000 * 10% * 0.45 = £450,000
Employee Fuel Benefit NI = 500* £1000 = £500,000
Reason for Cost Savings
1) Better driving and optimum Route maximization
2) Personal Travel Detection and reimbursement
3) Overclaim on mileage through rounding.
4) Incorrect Mileage Rate
5) Accurate data less likely for additional tax e.g VAT Fuel Scale Charge
Employees fuel benefit charge
HMRC fines of £3,000 for not keeping proper records and risk of a detailed audit Penalties up to 30% for tax unpaid and deemed to be careless
Finance Staff and Management
1) Checking and Approving Mileage Claims.
2) Working out VAT element manually including checking VAT Receipts 3) Personal Travel Reimbursement
4) P11d submissions including Fuel Benefit Charge
5) Improved utilisation of company time (personal travel/idle time)
Average 5 days a month for 1 Finance Staff: £200 * 5 = £1000 per month. Annual = £12,000 Average 2 day a month for Management: £500 per month Annual = £6,000
Employees spending two days a month equivalent logging business mileage = £250 * 2 = £500 : Annual £6000
Employee utilising company time for personal trips: 1 day a month = £250 * 1 = £250: Annual = £3000
Total Savings: £2,500,000
Automated Mileage Tracking System
Automated Mileage Tracking system is essential for any business. The possible savings for a large company is significant and cannot be ignored. In the above case study which is based on conservative estimates the company could save a whopping £8.5m Studies have shown 47% of employee overclaim on business mileage we have just take a figure of 10%.
For lorries we have only taken 5% saving. They are unlikely to have any personal travel but the main saving will be through route optimisation, driving behaviour and employee utilisation.
For Company Cars, we have taken 5% saving as the likelihood of private travel is considered to be high. Again route optimisation and driving behaviour will be important factors in lower costs.
The summary of the main benefits
1) Innovative approach and reduced expense cycle. Mileage data for can be integrated into the expense claim system and paid accordingly. Personal Mileage cost recovery can be integrated with payroll. Mileage can be automatically submitted to the Accounts software by press of a button.
2) Save Employee and Employer administrative time
3) Lower Fuel costs
4) Fraud unlikely
5) Recovery of Personal Mileage
6) Data Availability and Analysis with KPI’s
7) Lower CO2 emissions
8) Improved driver behaviour and reduced risk of fines and accidents
9) Accurate VAT Returns and maximise claim
10) HMRC compliant and less likely for extensive audits and penalties
11) Tracking of vehicles to increase efficiency.
12) Reduced taxes ie VAT Scale Charge
13) Better Reporting for example VAT on fuel on one report rather deal with having to collate multiple spreadsheets. There are other useful reports for personal mileage recovery and for P11d filing.
14) Save Paper/Postage as VAT receipts held electronically.