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Where Taxpayers and Advisers Meet

Mileage records & S386 CA06

Milbo
Posts: 45
Joined: Wed Aug 06, 2008 4:07 pm

Mileage records & S386 CA06

Postby Milbo » Thu Sep 24, 2015 3:46 pm

We have a CT enquiry where HMRC have said that they are going to disallow a Director's mileage claim of £1,200 as records have not been kept in accordance with section 386 Companies Act 2006.

http://legislation.data.gov.uk/ukpga/20 ... ?wrap=true

This is the first time I have been quoted the Companies Act and I wondered whether anyone else has come across this.

Many thanks,

wamstax
Posts: 1863
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Mileage records & S386 CA06

Postby wamstax » Thu Sep 24, 2015 5:17 pm

So I assume that this relates to business mileage reclaimed from the company at the "tax free" rate of 40p per mile. It has to be accepted that merely entering £1,200 as business mileage really puts the claim in jeopardy BUT equally where does it say in the companies act that a mileage record detailing every journey and the purpose - a mileage log - needs to be maintained by the director.

With a few exceptions the companies act is silent as to the "exact" nature of the records that need to be maintained. In any case I do not see what assistance the companies act gives the HMRC. The transaction involved is the claim by the director that he is "presumably" entitled to recover his out of pocket expenses in the form of a mileage allowance and the company's acceptance of this and presumably credit to his DLA etc. So really where does the companies act give any ammunition to HMRC to disallow the mileage claim made and the company's payment of this. Clearly if HMRC are saying that they are going to disallow the expense it is not understood how they are going to effect such a disallowance. There is no argument that the director received a credit of £1,200 and if it is not expenses reimbursement then it must be part of his remuneration package that would be just as plainly allowable for CT purposes. Of course if the £1,200 was added to the director's income then it would be possible for him to claim for any expenses laid out wholly exclusively and necessarily in the performance of his duties. In that even he would then have to resort to compiling a record in support of his claim and in my view there is nothing to prevent him compiling such a list when submitting his claim armed with such documentary and other evidence that would enable him to show that the expense was truly incurred in the performance of his duties.

Of course HMRC are not beyond quoting suggested legislation that might look as though it sustains their position and in this instance I would ask them to detail specifically where the Companies Act says that the director must maintain a mileage log. The transaction that is involved as far as the company is concerned is the claim by the director and the payment/reimbursement/etc by the company. Accordingly his claim that he is looking for £1,200 to be reimbursed and the companies acceptance of this - presumably contained in some paperwork - is all the record that the CA would seem to require UNLESS the HMRC can point to the specific requirement that says that if this is not done then it is not allowable for tax purposes.

Frankly I think that this is HMRC at their not unusual flying a kite because somewhere somebody has meekly accepted such a statement as being a reason for disallowance. Given that there is no requirement for an officer of the company to provide anything more than he is asked for by his company's financial controller etc. there would in my view be nothing to prevent him from now providing the necessary back up to show that the claim was reasonable and justified.

Finally, unless this was the first year of the claim it seems that the accountant(s) should have been raising the barrier as to the veracity of what was needed to enable reimbursement to take place and this should be doen going forward to put matters beyond reproach. On the other hand - and having said all the above - if this was just an accounting adjustment at the end of the year when the accounts were put together then the company deserves what it gets in the way of a disallowance.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

wamstax
Posts: 1863
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Mileage records & S386 CA06

Postby wamstax » Thu Sep 24, 2015 5:23 pm

the legislation concerned is as follows:-
Duty to keep accounting records.


(1)Every company must keep adequate accounting records..
(2)Adequate accounting records means records that are sufficient—.
(a)to show and explain the company's transactions,.
(b)to disclose with reasonable accuracy, at any time, the financial position of the company at that time, and.
(c)to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act (and, where applicable, of Article 4 of the IAS Regulation)..
(3)Accounting records must, in particular, contain—.
(a)entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place, and.
(b)a record of the assets and liabilities of the company..
(4)If the company's business involves dealing in goods, the accounting records must contain—.
(a)statements of stock held by the company at the end of each financial year of the company,.
(b)all statements of stocktakings from which any statement of stock as is mentioned in paragraph (a) has been or is to be prepared, and.
(c)except in the case of goods sold by way of ordinary retail trade, statements of all goods sold and purchased, showing the goods and the buyers and sellers in sufficient detail to enable all these to be identified..
(5)A parent company that has a subsidiary undertaking in relation to which the above requirements do not apply must take reasonable steps to secure that the undertaking keeps such accounting records as to enable the directors of the parent company to ensure that any accounts required to be prepared under this Part comply with the requirements of this Act (and, where applicable, of Article 4 of the IAS Regulation).

There is nothing in S386 that says what the HMRC officer seems to be reportedly saying and I trust that putting them to pointing out exactly where there is not an adequate record showing the claim and reimbursement of the £1,200 to the director should suffice to either get them to withdraw such a stance or allow the director to provide evidence - from diaries/letters/notes of meeting etc - to prove the claim.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: Mileage records & S386 CA06

Postby King_Maker » Thu Sep 24, 2015 5:41 pm

HMRC will have to do better than that - unless £1200 was a "material" amount in relation to the company's P&L.

Do you know how the figure of £1200 was arrived at? Hopefully, as Wamstax says, it was not some round sum estimate?

Milbo
Posts: 45
Joined: Wed Aug 06, 2008 4:07 pm

Re: Mileage records & S386 CA06

Postby Milbo » Fri Sep 25, 2015 9:44 am

many thanks for your comments.

The mileage allowance is an under-estimate of the actual business miles travelled by the Director and whilst mileage has not been recorded, we have advised HMRC of trade shows etc attended which more than justify the amount claimed.

We will be referring HMRC to EIM31210 which allows an estimated mileage and that should be the end of the matter.

I was interested to see whether others had experienced this approach from HMRC.


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