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- Member
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Hi there all,
I'm hoping you could clarify this point for me as it constantly confuses me!
Most of my clients turn up with fuel receipts and no mileage logs, the majority have no inclination to start a mileage log either! Is it ok to claim an expense against tax (charged to p + L ) if they are all business expenses and not private but used in a private car or would they have to have a mileage log? What happens if so if they only have receipts at the end of the year and it is too late to draw up a mileage log? (both companies and soletraders)
Many thanks:-)
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Hi Karen,
Depending how long you have been working for your clients, you can guess if the expense is legitimate based on the knowledge of your client business activity. You can educate them by making them understand the importance of not just keeping receipts but also logging their expense.
There is a tactful way of approaching this issue. Everyone need to control private or business expense in order to be aware of the cash flow!
Now ethically if you know from a fact those expenses do not relate to their business activity you will need to make up a decision based on the materiality of the expense.
All the best,
xxx
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- Fellow PM.Dip
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Hi Karen,
This was posted on another thread as well. You can only pay the employees 45p per mile for the first 10,000 miles and then 25p per mile thereafter without a P11D benefit arising.
For more information have a look at http://www.hmrc.gov.uk/paye/exb/a-z/m/mileage-expenses.htm.
You must stress to their employer that it is their responsibility to keep these mileage records if they don't want to risk fines, penalties etc. if the HMRC ever come investigating.
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Are we talking about self employed people as opposed to employees?
If so, they can choose whether to claim the mileage rate or actual expenses incurred. However, there are a few things to consider.
First of all, unless they are doing a lot of miles, it is most likely to be better for them from the tax perspective to claim mileage than actual costs. So taking a moment or two to record how many miles they have travelled will reduce their tax bill.
Secondly, they still need to be able to prove, if necessary, that the mileage was for genuine business reasons. If they drive 10, 000 per year, how are they going to know how much was personal use and how much business unless they keep a mileage log? You can't just put through all your petrol, or pluck a figure out of thin air for how much you're claiming! You can only claim the part that relates to business travel, so you still need to keep a record of what amount of business travel you did.
Obviously if a vehicle is specifiically for business use only - a plumbers van, for instance - then it's straightforward to put through all costs (petrol, servicing and so on).
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- Member
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Hi, Thanks all.
Most of my clients are soletraders and I usually total al fuel receipts given and disallow a percentage for private use depending on what I've agreed with the client. ( same percentage as I'd use for their cap allowance adjustents for private use.) I have a new limited company with 1 director who travels quite a distance everyday. I wasn't sure if they could claim tax allowance on the fuel as above as he only keeps receipts he's used for business or whether he should have kept a mileage log but he's given me a years worth of acounts and no mileage log? and am I doing it correctly for sole traders? many thanks
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For the director, who owns the vehicle, him or the company? If it is him, then it needs to be mileage allowance. As a director, to just pay his own petrol without keeping records of mileage, he is neglecting his duty of care to the company, he should be ensuring only the correct mileage is paid. See http://www.hmrc.gov.uk/paye/exb/a-z/m/mileage-expenses.htm
If it's the company that owns the car then there will be various tax implications of him using the car, but taking that into consideration then actual costs can be paid.
You can use the business proportion of fuel method you described for self employed people but there are a few things to bear in mind.
First of all, you need to also include all other running costs (MOT, servicing, repairs etc) at the same percentage or else their profit will be overstated (and so more tax will be payable).
Secondly, unless they are doing a lot of miles it is likely they will be paying more tax than if the mileage amount was claimed.
Either way, they still need to be able to show that this is genuine business mileage and so not keeping a mileage log is asking for trouble as it means they are providing an estimated cost.
I'm struggling to see what is so onerous about keeping a notebook in the car to log business travel, to be honest! OK so if it hasn't been kept historically, nothing can be done about that now, but it should be set up from now on.
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Hi Karen,
I have red some of the replies to your post and i must admit it is getting a confusing!
When it comes to expenses there are two method, claim based on mileage or claim based on actual cost. For both method you need mileages logged. You need the mileage log to proportionate in case you decide to go for actual cost and the car is used for both private and business purposes.
You can check with the tax office and they will confirm that you can not claim both mileage and actual cost. If your client is operating above the VAT threshold he can not claim mileage. You will need to claim the actual cost.
Hope this help,
xxx
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- Member PM.Dip
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nckbooks said:
You can check with the tax office and they will confirm that you can not claim both mileage and actual cost. If your client is operating above the VAT threshold he can not claim mileage. You will need to claim the actual cost.
As I understand it you can't claim the milage allowance if the year you purchased the car you were above the VAT threshold (even if you weren't registered for VAT). So you can claim the milage allowance if you are operating above the VAT threshold, as long as you purchased the vehicle in a year that you weren't above the threshold, and this continues until you purchase a new vehicle. You also can't claim the mileage allowance in any year that you have claimed any capital allowance for the vehicle.
Lucy
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Sorry to butt in all but this again points out the old adage a little knowledge is a dangerous thing.
All too often on this forum we see people doling out advice like facts when there a completely incorrect.
If you are going to dole out advice please make sure it is correct or state you are not sure but you believe............
Point 1 If you are a VAT registered business you can still claim mileage rather than actual fuel receipts and there is even a formula to allow you to reclaim VAT on mileage claims.
Point 2 As bookkeepers we do not guess is something is legitimate or not we have to use the accounting concept of Prudence i.e. if it cannot be demonstrated the cost was incurred wholly and soley for business purposes then the cost should not be included however you can use things like the clients diarys and if appropriate invoices to put a mileage log together for them once they see how much you have charged and how easy it is to fill in the template let me assure you most will do it as a matter of course.
Point 3 Materiality is an accounting tool NOT a bookkeeping one. Materialtiy is used mainly in auditing for determining sample sizes and used when preparing final accounts as a tool for checking things that can effect the figures and distort them from being a true and fair view it is NOT however a tool for bookkeepers to decide whether or not to fudge the figures.
Now to the matter at hand!!
If your clients do not keep records of private and business mileage and it is nigh on impossible to work it out then the best course of action is to claim all their fuel receipts and then if they are an employee of a ltd company (Even if they are a Director / Shareholder etc.) Fill in a P11D for the fuel benefit. If they are a sole trader then the tax comp needs to take into account the fuel benefit charge (The sole trader part is from memory and may be out of date so I would advise you check with HMRC or their accountant.)
If the client is VAT registered and claiming fuel receipts for both private and business mileage then the VAT scale charge comes into play.
I hope this is of some help.
Kind regards
Stuart
Edited at 29 May 2011 11:39 PM GMT
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Stuart Wildman said:
“Sorry to butt in all but this again points out the old adage a little knowledge is a dangerous thing.
All too often on this forum we see people doling out advice like facts when there a completely incorrect.
If you are going to dole out advice please make sure it is correct or state you are not sure but you believe............
Point 1 If you are a VAT registered business you can still claim mileage rather than actual fuel receipts and there is even a formula to allow you to reclaim VAT on mileage claims.
Point 2 As bookkeepers we do not guess is something is legitimate or not we have to use the accounting concept of Prudence i.e. if it cannot be demonstrated the cost was incurred wholly and soley for business purposes then the cost should not be included however you can use things like the clients diarys and if appropriate invoices to put a mileage log together for them once they see how much you have charged and how easy it is to fill in the template let me assure you most will do it as a matter of course.
Point 3 Materiality is an accounting tool NOT a bookkeeping one. Materialtiy is used mainly in auditing for determining sample sizes and used when preparing final accounts as a tool for checking things that can effect the figures and distort them from being a true and fair view it is NOT however a tool for bookkeepers to decide whether or not to fudge the figures.
Now to the matter at hand!!
If your clients do not keep records of private and business mileage and it is nigh on impossible to work it out then the best course of action is to claim all their fuel receipts and then if they are an employee of a ltd company (Even if they are a Director / Shareholder etc.) Fill in a P11D for the fuel benefit. If they are a sole trader then the tax comp needs to take into account the fuel benefit charge (The sole trader part is from memory and may be out of date so I would advise you check with HMRC or their accountant.)
If the client is VAT registered and claiming fuel receipts for both private and business mileage then the VAT scale charge comes into play.
I hope this is of some help.
Kind regards
Stuart
Edited at 29 May 2011 11:39 PM GMT”
Hi Stuart,
With regards to topic above raised by karen, her concern, if i understood, was about the legitimacy of the expense and the lack of mileage log:
Point 1, i got the info from a hmrc workshop i attended last week. once a trader has reached the vat threshold he can no longer claim for mileage. This is an info from a HMRC agent.Now if this is not correct the info can be verified through the tax office has i advised above.
Point 2, yes a bookeeper should be using the prudence which is also an auditing/accounting principle. using a diary is a tool and all depend on the working relationship between the client and the bookkeeper.I am trying to understand why this principle is more relevant to this situation than materiality?!
Point 3 materiality is an auditing principle but relevant to accounting. there is no wrong doing in applying it for daily accounting transactions before producing final accounts. the trader in question has probably less than 5.6 million turnover companies therefore is not complied to auditing.There is no accounting regulation stating the principle should not apply to small business/sole traders. The expense could be high value and affecting profit and loss! if there is an irrelevance to this matter then i really would like to know as i am always willing to learn!
To close my post i would like to stress i am happy to re-discuss the matter should i have claimed anything prompting me or anyone else to perform below an acceptable standard.
Thanks for your input and kind regards,
xxx
Edited at 30 May 2011 07:54 PM GMT
Edited at 30 May 2011 07:58 PM GMT
Edited at 30 May 2011 08:06 PM GMT
Edited at 30 May 2011 10:39 PM GMT
Edited at 30 May 2011 10:42 PM GMT
Edited at 30 May 2011 10:47 PM GMT
Edited at 31 May 2011 04:49 PM GMT
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Nathalie
I have spoken with James and asked them to reply to the above points with their views.
Kind regards
Stuart
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- Member PM.Dip
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Hi Karen
I just thought that I'd better clarify my previous brief comments in this thread. I wrote 'As I understand' as at that point I didn't have the time to check the details.
If you are dealing with the accounts of a sole trader or partnership I would strongly recommend you look at HMRC helpsheet 222. This helpsheet (on the HMRC website) has some very useful information concerning allowable expense for the self employed for the tax year 2010-2011.
In my previous comment I mistakenly spoke of when a vehicle is purchased - I should have said acquired. I also didn't mention that my comments only referred to the sole trader, as none of my clients run limited companies I have never looked into the rules that apply to them.
The HMRC website is a great source of information - I would strongly recommend having a look
Lucy
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