Claiming tax relief on allowable expenses as a self-employed business owner really is a no-brainer, whether you’re a sole trader or the director of a limited company. If you use a car or other vehicle in your business, then you can also use the costs associated with this to claim tax relief.
How do I work out vehicle expenses in my business?
You can either claim for each vehicle expense, such as fuel, insurance and repairs, separately, or you can work out your expenses using a flat rate based on the number of miles that you travel. Claiming mileage using a flat rate is also known as ‘simplified’ expenses.
What vehicle costs can I claim for?
If you decide to claim for each cost, this can include:
- Vehicle servicing and repairs
- Vehicle insurance
- Breakdown cover
- Any hire charges
- Parking
- Fuel
- Vehicle licence fees
Sole traders and partners in partnerships can claim tax relief for using their own vehicle for business purposes, but you can only claim for the proportion of the costs which relate to business use. For example, if 70% of the time that you use your vehicle is for business, then you can claim 70% of the costs that you incur.
If you run your business as a limited company then it’s a bit different. Either the company owns the vehicle, and then any personal travel is treated as a benefit (which is subject to tax), or you own the vehicle, and then charge your company for mileage. The company reimburses you for your mileage, and then includes this as part of its costs in the Company Tax Return.
What are business mileage rates?
You can use these rates if you’re a sole trader or partner who is working out vehicle expenses using the flat rate system (simplified expenses), or if you’re charging your limited company for mileage that you incur in your own vehicle.
In order to make the cut, your business miles must be exclusively and entirely for – yes, you’ve guessed it – business purposes. You can’t count any personal trips, or any commuting to work.
The rate of mileage depends on what type of vehicle you’re using, and how many miles you travel in a year.
| Mode of transport | First 10,000 miles | Over 10,000 miles |
| Car/van | 45p | 25p |
| Motorcycles | 24p | 24p |
| Bikes* | 20p | 20p |
*Sole traders are not allowed to claim mileage for bikes – only limited companies can do this.
Here’s an example of mileage claims in action
Imagine you’ve driven 13,000 business miles over the year. So the calculation you would do is:
- 10,000 miles x 45p = £4,500
- 3,000 miles x 25p = £750
- Total you can claim = £5,250
Although sole traders can’t claim for any mileage they cover via bicycle, it may be possible to claim back some bike-related costs. These might be for things like buying the bicycle in the first place, replacing the tyres, or getting it fixed.
The amount that you claim must relate to the business though, so if you also use the bike for personal reasons, you might need to work out the ratio of business to personal usage. This part can get tricky, which is why it’s well worth speaking to an accountant to see what’s what.
No matter what mode of transport you’re using to do your business miles, it’s crucial you support your claim with plenty of evidence. Top class record keeping is the name of the game.
Does claiming mileage mean I get the money back from HMRC?
Sadly not! Claiming any expenses for your business, including mileage or vehicle costs, means that you’re offsetting that amount against your profits. This reduces the profit figure which, because tax is paid on profits, reduces the amount of tax the business pays. You won’t actually be reimbursed by HMRC!
How do I record my business mileage?
Establishing a system to correctly log your business miles helps make sure you’re claiming what you can, as well as ticking an HMRC compliance box. And yes, HMRC do carry out spot checks.
If HMRC do inspect a claim, they will generally also want to check that the system you have for recording business expenses is set up properly. It needs to be fit for purpose. No matter what format you receive receipts or invoices, you’ll need a way to retain them alongside the corresponding record of your transaction. This is the case whether you’re a sole trader, company director, or an employee making a mileage claim.
Don’t forget (and we really can’t over emphasise this) – if you forget to claim for any business miles or expenses, you’re essentially leaving yourself and your business out of pocket. But of course, overclaiming can land you in a muddle too (not to mention potential hot water with HMRC).
What kind of details should I record?
Whether you use the flat rate or full cost method for claiming vehicle expenses, it’s good practice to maintain a log of your journeys. As well as helping you claim the right amount of tax relief, you’ll be able to spot any unnecessary journeys that are costing your business money. Could the meeting be done on Zoom instead?!
The information you record should include:
- The date and destination of your trip
- The purpose of your trip
- Where your journey started and ended
- How many business miles you covered (it’s a good idea to set your mileage counter for this).
If you incur any other travel-related costs along the way, such as parking charges, then you should record these too and keep the receipts.
What happens if I don’t get a receipt?
Sometimes you won’t be given a receipt, but that doesn’t necessarily mean you can’t claim. For example, if you pay a toll to go through a tunnel, record the transaction as normal, including the date, the amount, and what the payment is for.
If HMRC do carry out a spot-check, your start and end location will demonstrate that the tunnel formed part of your route, and toll information can be verified online.
What are HMRC Advisory Fuel Rates?
If you need to pay employees for mileage in a company car, rather than their own personal vehicle, then you’ll need to use Advisory Fuel Rates. You should also use these rates to work out how much an employee needs to pay back if they use their company car for personal travel.
Advisory Fuel Rates are payable based on engine size:
| Engine Size | Petrol | Diesel | LPG | Electric |
| 1,400cc or less | 11p | – | 8p | 4p |
| 1,600cc or less | – | 9p | – | 4p |
| 1,401cc – 2,000cc | 13p | – | 9p | 4p |
| 1,601cc to 2,000cc | – | 11p | – | 4p |
| Over 2,000cc | 19p | 13p | 14p | 4p |
If one of your employees goes on a business-related journey and takes another member of staff with them in their car, they can claim a maximum of 5p per mile. The passenger must also be an employee of the company, and the sole purpose of the journey must be for business.
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