Document mileage claims correctly or lose millions in VAT

Accountants may want to note that businesses that fail to document their mileage claims correctly could be losing millions following this year’s rise in the rate of VAT, according to GlobalExpense.

The expenses management specialist estimates that £3.5 billion was spent of business travel last year and £1.4 billion of that was accounted for by mileage claims. Mileage claims need to be accompanied by a valid VAT receipt and GlobalExpense estimates that UK businesses were unable to recover £124 million last year due to lost purchase receipts.

The company went on to explain that the rules concerning VAT compliance are complex. Receipts must include the sellers VAT number and show the breakdown of the VAT payment. Fuel needs to be bought on the day of travel, or within a reasonable period before the journey takes place.

Employees made fewer claims for mileage last year even though they travelled an average of 71 miles further per trip. Even so, the average claim increased by 15%.

The Advisory Fuel Rate for private vehicles, set by HMRC, increased 5p to 45p after this year’s Budget, but this still lags behind increases at the pumps. Firms can elect to apply this new rate, along with the extra costs it imposes, but employees might feel resentful if they think they are not reimbursed fully for their fuel costs and this could lead them to pad out their claims.

34% of people think it is acceptable to exaggerate expenses if an employer does not reimburse the full cost of fuel and 22% of people claiming expenses are more likely to inflate mileage expenses than any other claim.

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