Everything you need to know about mileage allowance
As a sole trader, it’s important to get your head around what you can and can’t claim when it comes to using a vehicle for business purposes.
You may have a car that you use for your work and personal life, or it could be that you drive a van that’s only ever used for your business. Either way, you can claim the costs associated with using your vehicle for work back off your tax bill. Here’s what you need to know.
How much money can I claim?
It may be hard to believe, but mileage is actually one of the simpler things you can claim for.
You can use a flat or fixed rate to claim your mileage if you drive:
- a car (unless it’s a commercial use car, like a black cab)
- a van or other goods vehicle
- a motorbike
This works out at:
- 45p per mile for all the mileage you rack up, up to 10,000 miles
- 25p per mile for any mileage after that
- 24p per mile for motorbikes — no matter what the mileage
This rate is meant to cover fuel costs, insurance, repairs and MOTs, so you don’t have to work it out separately.
But, you can calculate it separately if you want to.
This is called the actual costs method, and there are two good reasons why you might use it:
- The car you drive is particularly expensive to run. If your fuel doesn’t go very far, for example, you’re not going to make as much money back as someone else whose car gets a decent amount of miles to the gallon.
- When you bought your vehicle, you claimed back the cost through your business as a capital allowance — so it’s not technically a personal vehicle in the first place – more on that later.
If you want to go down the route of calculating actual costs, rather than using flat rates, you’re going to need to start tallying your mileage on all business journeys you make. You’ll also need to track what you spend on your vehicle to keep it roadworthy and work out how much of that cost you can say is for business versus personal use.
What journeys can I claim mileage for?
This bit is fairly straightforward.
Basically, business mileage is what you rack up while on a work journey. This could be visiting a client or picking up goods for delivery, for example. But it doesn’t include taking a detour to your mum’s for Sunday lunch — no matter how ‘necessary’ those Yorkshires are for your productivity across the upcoming week.
Another thing that’s not included in your mileage is your normal commute from home to work.
HMRC call that a non-work journey, and while it might sound a teensy bit unfair, try to think of it this way: you’re travelling to work, not for work.
So, if you’re travelling from home to work, or back again, that’s not included.
But if you’re travelling from where you work to visit a client, or to a depot to pick up goods, that’s a journey you make for work. And that’s mileage you can claim for.
As always, there are a few exceptions:
Say, for example, you drive straight from home to visit a client or to a merchant to pick up materials before going on to your place of work. You can still claim for the mileage of that route if the journey is clearly different from your normal commute.
Also, any parking fares will need to be claimed on top of your mileage.
Why is it important to claim mileage?
Mileage allowance is easy money and it’s an important claim to make for your business. Just think of it this way: the more time you spend on the road, the more it costs you.
Fuel is one thing, but wear and tear is one of those costs you won’t notice straight away. That’s why it’s important to consistently make a note of your mileage, so when it comes to doing your tax return, you know you’re getting back what’s due as part of your business expenditure.
I bought my vehicle solely for work – what can I claim?
The flat rate mileage allowance system is designed to reimburse you for the fuel and maintenance of using your personal vehicle for business.
So if you want to claim the cost of your entire vehicle as a business purchase, you won’t be able to claim the flat rate mileage allowance.
Instead, you’ll need to use the ‘actual cost method’ to claim any running costs you want to make. Plus, you’ll be able to claim back the vehicle purchase cost as a capital allowance. It’s worth bearing in mind that if you buy a new vehicle that you intend to use for business and personal reasons, you can claim a percentage of this cost as a capital allowance too (based on the percentage of time/distance you use the car for work).
Can I claim the cost of my van?
Vans are treated slightly differently to cars when it comes to the world of business expenses. Here, you have two options:
- You can claim the cost of a van as a capital allowance, showing evidence of how much it’s used for business,
- or you can use the Annual Investment Allowance to claim back 100% of the cost to buy it, as long as:
- you didn’t own the van for another purpose before using it for your business
- you paid for it using the traditional accounting method
- any personal use is extremely minor, like a quick emergency pitstop during your workday.
It’s also worth noting that if you lease a van, and you’re VAT registered, you can claim back the monthly payments. And if you rent one, you can claim the rental cost back as a business expense.
To find out about additional travel expenses you can claim, like hotel stays and meals on overnight business trips, take a look at our article: Business expenses explained for the self-employed.