Nick,
Using metric screws and the fiction that 0.040" = 1mm seems common on budget Chinese machines. My lathe is "imperial", but the only imperial thing about it is the leadscrew. The feedscrews on the cross slide, topslide and tailstock ram are all threaded 1mm pitch, but with dials marked in inches. As your example shows, that creates problems on the miller, but it isn't so bad on the lathe. If I wanted to reduce a 0.500" diameter to 0.200" and relied only on the "inch" dial, the error would be on the safe side, and a bit more would need taking off. But I don't rely on the dials, and use a micrometer when getting close, which would show that another cut is needed. That's better than trying to put metal back on again.
Andy