Director's fuel/mileage claim

Director's fuel/mileage claim

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New and very green (not in the ecological sense) VAT-registered client wants me to prepare his company's first year accounts.

He has kindly provided a bag of fuel receipts that he has processed through his accounting system and on which he has recovered the VAT. It's a private car. 

1. He agreed that not all his motor use was on business, but claimed that the vast majority was.

2. He did not keep a log of business mileage, but says he did 35,000 business miles

3. He did not keep a diary of his trips and appointments.

I had thought of including all the fuel receipts and applying the fuel scale charge which appears to solve the VAT issue but not the CT/personal IT issue.

We are not talking about a trivial sum, so apart from educating him how would you deal with it?

Thanks in advance

Replies (15)

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By mwngiol
21st Mar 2013 16:44

One-off

As a one-off, why not get him to sign a statement for your file saying that he swears on his dog's life that what he says is true, and that he accepts that HMRC will not be prepared to accept his word if they do happen to enquire. He also signs the accounts including the usual "accs prepared from info provided etc".

Also tell him that this is a one-off and he needs to keep better records as you won't be willing to do it again the following year.

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By Roxanne Wralls
21st Mar 2013 16:44

Why not...

... introduce the car as a company asset at the beginning via the DLA, giving him a car and fuel benefit and calculate the fuel scale charge as you say.  That way, it's completely correct to claim it all.

He'll then learn, when you tell him that's the only way of being bullet-proof!

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By johngroganjga
21st Mar 2013 20:26

mwngiol's solution does not deal with what you need to do to avoid claiming tax relief on fuel for private mileage.

Roxanne' solution deals with that but may be too drastic if he doesn't want the car in the company.

You say he has done 35,000 business miles in his own car.  Has he charged the company for its use of his car?

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By andy.partridge
21st Mar 2013 20:46

Oh yes
He has also clumsily submitted other running costs but not the car itself which was bought before the company was formed.

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By johngroganjga
21st Mar 2013 20:54

So the unclaimed business costs that he is bearing personally probably exceed the private costs that the company is bearing?  Or is that going further than the facts permit?

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By andy.partridge
21st Mar 2013 21:09

Sounds a bit fast and loose to me.

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By Andrew288
22nd Mar 2013 07:43

Round in circles?
35K miles without a diary sounds like a recipe for hours wasted visiting people who were not expecting to see him.

Receipts will at least give you the towns visited and motorways used but methinks he's wanting to take you for a ride.

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By Steve Holloway
22nd Mar 2013 08:30

You have invoices presumably ...

Just go through every one and construct a meaningfull diary of trips. The follow this up with him and add the extra detail from his memory. Locations of fill ups and hotels should add to this memory jog exercise. I have used this approach a few times when taking on new clients and it has always worked, providing statutory back-up for the personal expenditure to be offset against. Usually you can turn a profit as the AMAP rates obviously include an element of depreciation, insurance etc which has not been put through the business.

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Replying to lionofludesch:
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By andy.partridge
22nd Mar 2013 16:09

Not a contractor

He hasn't recharged business mileage to any client. Essentially he is a salesman with an exclusive licence to generate orders for an overseas manufacturer. He gets a phone call and off he goes in the car. No diary. Frightening,

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By johngroganjga
22nd Mar 2013 08:43

I would start by adding up all the motor expenses put through the company in the year and then working out how many business miles (at 45p a mile etc.) would have justified drawing that amount from the company as expenses. 

Then take it from there depending what that exercise shows.

Obviously at the same time persuade the client that it is in his interests to keep proper records going forward.

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By ShirleyM
22nd Mar 2013 08:44

Can you get the MOT certificates?

Assuming the car is over 3 years old. This would provide proof of his overall mileage and give you an idea of whether he was trying it on.

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By johngroganjga
22nd Mar 2013 09:08

There are two issues here. 

There are two issues here.  One is: how many business miles has he done?  The other is: How to deal with the costs relating to his private mileage that are sitting in the company's profit and loss account?  Most of the above responses address only the first point, but do not help with the accounting.

The two questions are independent of each other.  Even if you knew precisely and with absoluite certainty how many business miles he had done you would still have to work out how to reflect that information in the accounts and tax returns etc.

 

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By Roxanne Wralls
22nd Mar 2013 13:53

No you don't

There are only one two correct ways to deal with it.

All the costs should go to DCA (or on the P11D), unless it's a company car (which as I've said is an option).  The only acceptable way for an employee/director to be recompensed for travel in their own car is with a mileage rate, get him to make a claim to the company. If he says it's 35,000 miles, then it's 35,000 miles, credit 35,000 x 45p to the DCA and put 25,000 x (45p - 25p) on the P11D.

You can only recover VAT on the mileage rate for an employee/director too.  None of the petrol or the repairs/servicing were supplied to the company if it's not a company car. Only the petrol that is used (under the mileage rate) is deemed supplied to the director/employee as agent of the company.

Dr Fixed Asset - Cars    MV on day 1

Cr DCA    MV on day 1

Makes all the problems go away though though, save for the car and fuel benefits.  Well, he should have asked.

You can always take it out again once you've got things on an even keel.

The decision is yours! Well it's your client's, actually.

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By andy.partridge
22nd Mar 2013 16:03

I think Roxanne is correct

Whether or not the car has actually done 35,000 miles is somewhat academic. I suspect if I analyse the fuel receipts it may well support the assertion that 35,000 miles have been driven. However, there is no hard evidence that a single one of them was on business.

A P11D is best avoided since part of the year relates to the 2011/12 tax year and that makes it 8 months overdue! Oh and did I mention because he hasn't paid himself a salary there is no PAYE scheme?

As for the mileage rate even if I conceded there were 35,000 business miles I would calculate 25,000 of them @ 25p to avoid the P11D.

My big problem is no mileage log, no diary. He said he used to have to do that when he was employed, but didn't see why he should bother now he was 'self-employed' because there wouldn't be a problem with him authorising his own expenses!.

Ever felt like punching the wall?

 

 

 

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By johngroganjga
22nd Mar 2013 20:06

I agree. That's exactly what I was suggesting, albeit more succinctly.

Point not to forget is that it will be down to him to prove that he did 35,000 business miles in the event of an HMRC enquiry, and if he is not confident of being able to do so perhaps he should reduce his estimate to a figure he is confident of being able to justify.

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