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 it 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 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
- Scarcity of Information
- Overpayment of Expenses
- Time and Effort
Consider the following scenario: A courier company in the UK has drivers with own vehicle and are not familiar with excel. Therefore, the drivers enter the miles driven on a piece of paper or log book.
- 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
- The manager doesn’t have time to check a multitude of entries or just checks a sample 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 lack of transparency in the manual system.
- Finance Team checks the totals, miles driven in the year and mileage rates i.e 0.45 & 0.25p, enters accounting entry in the software and makes the payment.
- The mileage amount may not go in the correct accounting period due to 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 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 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 journeys validity at this stage, either on a web dashboard or a spreadsheet report sent directly to the manager from the app
- 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 record of miles driven each day.Even though manual edits to trips are sometimes possible, but 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 member of the finance team, can focus more on value-added activities rather than spending hours entering and checking data.
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.
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
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 expense. 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.
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.
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 which captures 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.
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.
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. With making tax digital and drive towards automation, a mileage app will streamline processes bringing significant time and cost savings.