Whether you’re a company director or an employee, you may need to claim for fuel and business mileage.
Motor expenses can be difficult to get your head around, and different rules apply depending on whether you are self-employed or the director of your own limited company.
This guide will talk you through the options available, helping you to claim on fuel and mileage the right way.
Self-employed or Sole Trader
There’s no concept of a “company car” for a sole trader, because there is no legal difference between you and your business. This means you will always own the vehicle.
If you are a non-VAT registered sole trader (or partnership) and want to claim tax relief on businesses journeys, you must opt for one of the two options:
- Standard Mileage Method
- Actual Cost Method
Whichever method you choose, HMRC may invalidate your claim for mileage if you do not give a breakdown of the journeys and miles covered. Ensure you detail all business mileage for each individual journey on a spreadsheet and keep it up to date every month.
Standard Mileage method
If you have not claimed capital allowances on the car, then you can use the Simplified Mileage Method to work out what you should claim for your business journeys.
This method is easier for those who make just a few business journeys in their vehicle, but are mainly using it privately outside the business.
How to work it out
To claim, simply add up all your business mileage for the tax year, then apply the HMRC mile rate per mile as shown in the table below. After the first 10,000 business miles travelled, the HMRC rate drops from 45p a mile to 25p a mile.
The HMRC rate of 45p a mile does not just cover the cost of fuel per mile. It takes into account the general wear and tear on the car and aims to cover the cost of fuel, running costs and repairs.
| Vehicle | Rate Per Mile (on first 10,000 miles in tax year) | Rate Per Mile (On each mile over 10,000 miles) |
| Cars & Vans | 45p | 25p |
| Motorbikes | 24p | 24p |
| Bicyle | 20p | 20p |
For example, say you have driven 5,000 miles for business-related purposes, then you would calculate:
5000 x 0.45 = £2,250
You would then put £2,250 into your accounts as one of your daily running costs. This will reduce your profit and reduce the amount you pay tax on.
Please note that you cannot claim for travelling to your normal place of work.
Actual cost method
This method is better for those who use their vehicle predominantly for work and rarely use it for personal use (such as a work van).
How to work it out…
First, you need to work out the business proportion of the vehicle’s use. To do so, add up all your mileage, both personal and business mileage. Then determine what proportion of your journeys are for business use.
For example, if you find that 70% of your car journeys are for business use, then 70% is the business proportion of the car’s use.
Once you have calculated the business proportion of your vehicle, apply the percentage to claim on only the running costs of your car.
Running costs are fuel, repairs, MOT, insurance, servicing and so on. Running costs are not mileage.
For example, if your fuel bills total £1000, then the business proportion of your fuel would be 1000 x 0.7 = £700. You will then include this amount in your business’s accounts as a day-to-day running costs of the car.
If you use the actual cost method, you may also claim capital allowances on the business proportion of the cost of the car.
Which method should you choose?
The simplified mileage method is ideal for cars that are unlikely to break down or do not need regular maintenance. This is because you can take advantage of the generous 45p per mile rate.
If you have an old car or van that requires regular maintenance and you are doing constant business travel with it, then the Actual Cost Method may be a more cost-efficient option for you with regards to servicing costs.
Limited Companies
In a limited company, the director is treated as an employee of the company. This affects who owns the vehicle and impacts the director’s personal tax through “benefits in kind”.
If you are not VAT registered, you can use the two following methods:
Standard Mileage Method
Just as it works with Sole Traders, the Simplified Mileage Method means that the vehicle remains privately owned and employees can claim mileage for business travel. You should choose this method if you are making a combination of business and personal journeys in your car. You must keep detailed mileage records throughout the year.
Actual Cost Method
If you use this method and claim capital allowances on the vehicle, then the vehicle essentially belongs to the company – a company vehicle. You, as an employee, have use of the company vehicle for business journeys.
Unlike a sole trader who can make a deduction for any non-business mileage, any personal use of the company vehicle will be classified as a ‘benefit in kind’ and will be subject to tax through your personal tax return. Personal mileage will also need to go on your P11D at the end of the year.
Which method should you choose?
The Actual Cost Method should only be used for business vehicles that have absolutely no personal use. Otherwise, it is best you use the Simplified Mileage Method.
