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Business mileage claim error

How to amend tax returns for a milegae claim error going back to 2015/2016.

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As a sole practitioner I have having everyone’s nightmare scenario and have discovered an error in the clients records that ideally I’d have discovered much earlier. I am aware of my failing and don’t wish to be made to feel worse but I would appreciate some guidance on how to proceed to set it right.

Basically, a director has a lease company car. We declare this a benefit and pay the tax and class 1A NIC. The problem is that I have found that he has been claiming 45p per mile from the company. He pays for all fuel privately. In two of the years the company has paid the insurance and in two I need to ask who paid it. He uses FreeAgent and records mileage to recharge to customers. I hadn’t realised he was then actually paying this to himself.

So this goes back to 2015/2016. Approximately £12,000 has been overclaimed.

I need to amend the corporation tax and his personal tax. He has no director’s loan account that we can use. So he either needs to pay the money back or declare extra dividends in each tax year and pay the tax.

Any advice very gratefully received. How best am I to amend the corporation tax and his personal tax going back to 2015/2016? Also I’m hoping that HMRC will be kind given that this is an unprompted disclosure. Thank you.

Replies (15)

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RLI
By lionofludesch
08th Oct 2019 15:45

Dunno that you need to alter the Corporation Tax. They can pay him what they like for mileage - it's just not all tax free.

Basically, if I understand you correctly, he has some undeclared personal income which you need to disclose, does he not ?

Unprompted but more than twelve months old still carries a penalty which, offhand, is, I believe, 10%.

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Replying to lionofludesch:
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By Nicky Richards
08th Oct 2019 15:45

Possibly, yes interesting thought.
Anything to save tax would be great. Then I need to make sure that the company hasn't paid any expenses for the car though. Sometimes the insurance has been paid and the maintenance lease element and excess mileage charge on the lease?

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By Rammstein1
08th Oct 2019 15:58

If it is a company car, the company can pay all of the car expenses. It is only the 45p per mile to the director that you need to deal with in the directors hands.

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Replying to Rammstein1:
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By Nicky Richards
08th Oct 2019 16:04

Thank you.
So I can ignore the accounts and corporation tax and just amend the personal tax of the director showing extra income of the amount received over the advisory mileage rates.

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Replying to Rammstein1:
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By Nicky Richards
08th Oct 2019 16:46

Rammstein1 wrote:

If it is a company car, the company can pay all of the car expenses. It is only the 45p per mile to the director that you need to deal with in the directors hands.


If this is the case then surely no more facts are needed?
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Replying to Nicky Richards:
RLI
By lionofludesch
08th Oct 2019 17:47

Nicky Richards wrote:

If this is the case then surely no more facts are needed?

Big "if", but in essence, I agree with you.

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Replying to Nicky Richards:
RLI
By lionofludesch
08th Oct 2019 16:02

Nicky Richards wrote:

Possibly, yes interesting thought.
Anything to save tax would be great. Then I need to make sure that the company hasn't paid any expenses for the car though. Sometimes the insurance has been paid and the maintenance lease element and excess mileage charge on the lease?

Ach - well, you need to come up with some hard facts before we start coming up with solutions.

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By Matrix
08th Oct 2019 18:43

Surely you just need to amend the company accounts for the difference between the actual fuel and the mileage rates and book this to DLA. I don’t see why you need to amend his personal tax return.

Has fuel already been claimed or not? What about VAT?

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Replying to Matrix:
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By Nicky Richards
08th Oct 2019 20:07

Then he'd have an overdrawn DLA going back years.
Mileage has been claimed at 45p per mile, reducing to 25p after 10,000.
Vat has been claimed on the fuel proportion of this so that shouldn't change.
The claimed expenses have been paid to the director each month and the company accounts show a deduction for the mileage claimed less VAT.

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Replying to Nicky Richards:
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By Matrix
08th Oct 2019 20:55

But you can’t change history, are you proposing to increase dividends? Sorry if I have misunderstood.

And you have adjusted for the actual fuel used for business already? I take it this was claimed and then the mileage on top?

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Replying to Matrix:
RLI
By lionofludesch
08th Oct 2019 22:15

Matrix wrote:

But you can’t change history.....

No, that's exactly the point. He was paid 45p per mile. He wasn't advanced any loans.

Setting that aside, yes, you could treat the excess as loans, alter the Corporation Tax comps and pay the extra Corporation Tax, pay the s455 tax (not so fussed about that - they can get that back) vote huge dividends to pay off the loans and the dividend tax on those. We don't have enough numbers to work from but I'm not sure that the tax cost is going to be any better than paying income tax on the excess mileage allowance. It'll certainly be a lot more work.

The OP has some number crunching to do.

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Replying to lionofludesch:
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By Matrix
08th Oct 2019 22:33

So how would you treat the excess mileage allowance on the personal tax return?

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Replying to Matrix:
RLI
By lionofludesch
09th Oct 2019 08:13

Well, there's a problem, isn't there ? - it goes too far back to do on-line. You're going to need to put the case to HMRC in a letter. That would be so whichever route you chose to correct the error.

I'd try to coax them into accepting a settlement for the whole period to 5 April 2019 but wouldn't be surprised if they wanted EYUs and revised Self Assessment for any in-date years.

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Replying to lionofludesch:
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By Matrix
13th Oct 2019 12:09

But what is the excess mileage claim if you think it is extra income for the owners? Salary or dividends or BIK or what?

Since I don’t think it belongs on the tax return at all and an adjustment to motor expenses should just be made in the accounts since it is an accounting adjustment. (I may see if the client has been truthful, look at the amounts and any tax advantage etc, it is easy for me to say this since it isn’t my client.)

I had the opposite this year, a client didn’t give me their prior year mileage so I put two years’ through in one go.

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Replying to Matrix:
RLI
By lionofludesch
13th Oct 2019 12:37

Matrix wrote:

But what is the excess mileage claim if you think it is extra income for the owners? Salary or dividends or BIK or what?

Since I don’t think it belongs on the tax return at all and an adjustment to motor expenses should just be made in the accounts since it is an accounting adjustment. (I may see if the client has been truthful, look at the amounts and any tax advantage etc, it is easy for me to say this since it isn’t my client.)

I had the opposite this year, a client didn’t give me their prior year mileage so I put two years’ through in one go.

For me, it's net pay. Not salary but income from the employment.

I take your point and I may have treated it as an error had it been just the previous year which was affected, but, for me it's gone on for too long.

Other opinions are available. Yours, for instance.

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