WHEN IS A BUSINESS MILE
REALLY A PRIVATE MILE?
by Nick Davies, NHD Consulting

The tax rules relating to employee business travel and subsistence changed in April 1998. The general idea was to simplify a complex area, but, in typical Inland Revenue fashion, the guidance notes (IR Booklet 490), which ran to approximately 100 pages, managed to throw up almost as many questions as they answered.

Unfortunately, it appears that some employers, bemused at the length and complexity of the booklet, promptly filed it in a suitable receptacle in the corner of the office. For many, this has been a mistake. The Revenue inspection teams routinely target business mileage for close scrutiny, particularly for those company car drivers who have been reported as having travelled more than 18,000 annual business miles. If they discover that some of the reported business mileage is, in fact, private mileage, the cost can be substantial in terms of tax and penalties. Innocent error is no defence in the eyes of the Revenue.

So what can go wrong? Very often the worst problems arise in respect of the sales force. Let's assume that a rep lives in Brighton and covers the geographical area within the M25. He claims 20,000 business miles a year, and so qualifies for the tax reduction for high business mileage. He sets off from home one morning, and carries out a number of calls in his area. That evening, following a few drinks with a customer, he books into a hotel in London. The following day he carries out some more calls before heading back to Brighton. Is all of his mileage for business purposes?

The Revenue guidance on this is very clear. He is entitled to claim business mileage for all journeys within the M25. However, the journeys between home and the edge of the area are classed as private. If these amounted to, say, 2,500 miles per annum, he would have done less than 18,000 business miles and so would be facing a potential tax bill for a 6 year period amounting to a few thousand pounds, plus interest. The company would also be looking at penalties for filing incorrect forms P11D. The maximum penalty is now £6,000 per form per year!

What about the cost of the hotel room? Again, the guidance is clear. The cost of the hotel is taxable on him, as it relates to "ordinary commuting"!

The situation could be further complicated if he is required to spend each Monday and Friday at Head Office in Birmingham. It is possible that the Revenue would consider the Head Office to be a Permanent Workplace. If this was the case, then travel between Brighton and Birmingham would also be classed as "ordinary commuting", and therefore for private purposes.

This is just one of a number of situations with the potential to incur substantial expense. If employers haven't already done so, they should consider reviewing the position of all employees who travel on business to identify any problem areas. Employees need to be made aware of what, exactly, is business mileage and, more importantly, what isn't. Finally Inland Revenue agreement can be sought on any situation that is not clear-cut. This can provide certainty that the correct treatment is being adopted, and can prevent a continuation of expensive errors.

NHD Consulting have a wealth of experience of advising on all employee taxation issues. We can assist you to identify areas of risk, provide help with introducing systems and procedures to remove those risks, and negotiate with the Inland Revenue to ensure that tax liabilities are minimised. If you would like to discuss how we could help your business, please don't hesitate to get in touch.

 

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For more information on tax rules relating to employee business travel please contact
Nick Davies
NHD Consulting
2Whitehall House, 67 Wostenholm Road, Sheffield S7 1LE
E-mail: nick@nhdconsulting.com
Tel: 0114 258 7615  Fax: 0114 258 7625

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