Poor mileage records put fleets at risk of huge fines
Fleets have been fined millions of euros for reimbursing company car drivers for private journeys as if they were business trips.
Tax authorities across Europe are focusing much more closely on how major fleets account for business and private miles driven by their company car drivers, according to a fuel management specialist.
The Miles Consultancy (TMC) has warned that many blue chip corporate fleets face heavy fines, running into millions of euros, both for poor mileage record keeping and for reimbursing company car drivers for private journeys tax-free.
In several EMEA countries the provision of free fuel for personal journeys is considered a benefit in kind, for which the employee, and sometimes the employer, must pay tax.
Yet many businesses and company car drivers do not fully understand the difference between a business and private journey, particularly in regards to commuting, said Paul Hollick, managing director of TMC.
His company’s experience of capturing, analysing and vetting mileage data of more than 110,000 company drivers, both in the UK and internationally, has revealed a worrying lack of consistency and accuracy in fleet mileage logs of business and private miles, making it difficult for tax authorities to establish what tax is due.
Heavy fines for fleets
“Across Europe there is a real trend among big, blue chip corproates for the local revenue agencies to go in and give a thorough audit,” said Hollick.
“They will levy big fines if they believe employees have, in effect, been paid a benefit in kind because of having incomplete or unaudited records. We have seen that in France, Germany, the UK, and even in Turkey with some of our clients.”
Tax authorities are demanding that fleets prove that every mileage payment “is wholly and exclusively for business purposes,” said Hollick.
“If you can’t do that, they will run an assessment of what they think is accurate and what they would expect to see, based on their assumptions. Those assumptions will go back up to seven years in the UK, and seven to 10 years in other countries. One business in France recently found itself facing a potential €2 million fine, on a large employee base.”
Mileage claims and the management of fuel by multi-national businesses is a relatively easy target for tax authorities. which are seeing other revenues, such as corporation tax, disappear to tax havens.
Mileage recording challenges
Yet it can be difficult for international fleet managers to maintain visibility of fuel costs and controls, given the fragmented nature of local vehicle operations. Implementing tighter controls of mileage reporting is is also potentially difficult, due to the power of works councils in countries such as France and Germany, said Hollick. In some markets it appears that free fuel for private journeys has become a de facto, unofficial, tax-free benefit for drivers, even if this leaves companies horribly exposed to prosecution.
“We have seen one prospect that had a private mileage reimbursement rate of only 6%. So they were effectively saying that 94% of all fuel used was for business trips. If they were company cars that is not possible,” said Hollick. “And that was on a 2,000 vehicle fleet. The norm you would expect is 50:50, business to private miles. If you total all the fuel that the employees should have paid for, and gross that up for benefit in kind, that will be quite a big tax bill when the revenue come and audit.”
Is commuting a business mile?
In addition to robust controls, processes and accounting procedures, fleet managers and drivers also need to understand clearly what constitutes a business mile. The definition of a business expense may be fairly consistent across most European countries, but there are significant variations in the treatment of commuting.
In the Netherlands and the UK, for example, journeys to an employee’s regular workplace are treated as private miles, whereas in Germany all employees, whether company car drivers or private car drivers, can claim up to 30c per km for the trip to work.
And the complexity deepens with more complicated journey patterns. What happens, for instance, if a driver leaves home and passes his office on the way to visit a client? Is the whole journey a business trip, or only the miles from the office to the client?
“Not very many people do pure business trips from the central HQ where they work, and that’s where the differences in working out what is a business mile becomes quite complicated,” said Hollick.
Moreover, as more flexible arrangements for working from home become more commonplace, will definitions of ‘workplace’ change?
“Companies now have many tools at their disposal for managing remote working, while TMC can offer solutions to enable them to handle their employees’ mobility data and travel cost reimbursements compliantly," said Hollick.
TMC has just published a guide to UK definitions of business miles; download a free copy here.