Working out your motor expenses when you are self employed can feel like an uphill struggle. Don’t worry, we’re going to give you everything you need to know, regardless of whether you need to start claiming mileage as self employed or just need to understand how mileage rates work.
Learn how to efficiently claim your mileage expenses with our step-by-step guide:
- Determine what is a business travel cost
- Calculate business travel costs using the actual expenses method
- Calculate business travel costs using HMRC Mileage rates
For those of you in need of more specific help, check out the answers to our most commonly asked questions:
- What if I have bought my car with a capital allowance?
- What If I use the new cash basis?
- What if I drive a company car as a self employed?
- How can I claim mileage expenses as a self employed?
- How can I claim other travel expenses as a self employed?
- Quick Tip – What is the easiest way to keep track of mileage deductions as a self employed?
1. How can you go about calculating your claims on travel expenses?
Most people have both private and business expenses, and unless you’re very lucky, it’s unlikely you do all of you personal driving in a different car, so you need to be able to separate business from personal expenses.
There are two approaches you can take to claiming travel expenses as self employed:
- Working it out manually: the actual expenses method means you have to sit down and figure out all your motor expenses for the year. Then work out the number of business miles you do as a percentage of your total miles and use this to find out the business percentage of your costs.
- Claim mileage allowances: this method involves claiming your mileage expenses as a fixed rate per mile of business travel (also known as simplified expenses). The cost of the upkeep and general wear and tear of the vehicle is usually included in this number.
Which method should I use?
Both methods work but, for a small business, mileage allowance is usually simpler. Here are some key points to be aware of when you choose which method to use:
- If your business is above the £83,000 VAT threshold, then you can only use the first method.
- You need to choose one method as you can’t use both methods at the same time.
- If you choose a flat rate mileage allowance, you need to stick with it for as long as you’re using the same vehicle.
2. How can I claim travel expenses using the actual expenses method?
As you might have guessed, this method requires accurate record keeping (check how here). All of your trips need to be logged and given a category of either business or private. You also need to make sure all of your costs related to your car are noted down. That includes everything from insurance to servicing. Anything related to your car, make a note of, fuel, licenses, road tax, etc.
How do you know your business travel costs?
First, divide your business miles by your total miles. Then multiply this number by your total motor expenses. Your answer is the amount you can claim on business travel expenses!
Once you’ve gotten used to logging all your miles and expenses, claiming mileage as self employed this way might benefit you if your motoring costs are relatively high.
Let’s say in this last tax year you spent £10,000 on fuel, servicing and any other car expenses (don’t forget your insurance).
Your total mileage for the year was 50,000 miles and of those 40,000 were incurred for business purposes. This means that, as a percentage, your total business mileage was 80% of the total:
So, it means that you can claim on 80% of your total motor costs: £8,000.
Step by step summary:
£10,000 Total Motor Expenses
50,000 Total Miles
40,000 Business Miles
10,000 Personal Miles
80% Are Business Miles (40,000 / 50,000)
£8,000 Claimable Amount (£10,000 x 80%)
3. How can I use the HMRC mileage rates for self employed?
The second method of calculating your expenses involves a fixed rate for each mile you travel. If you are self employed, HMRC allows you to use this method which involves fewer calculations. By using simplified expenses, you don’t have to work out your total motor expenses every year and it’s easier to put in practice than the actual expenses method.
Can I use simplified expenses?
If you are a sole trader or business partnership (excluding those with a corporate partner) then the answer is yes. These are the HMRC mileage rates for self employed:
|Vehicle Type||Per Business Mile – under 10,000 miles||Per Business Mile – over 10,000 miles|
|Cars and Vans||45p||25p|
These rates are updated quarterly. If you want to make sure that you don’t miss these updates, and subsequently any financial losses with mileage deductions, fill out the form below and we’ll keep you up to date:
Below you can see an example of how to use these rates:
Let’s say in the last year you’ve driven 15,000 business miles.
10,000 miles x £0.45 = £4,500
5,000 miles x £0.25 = £1,250
You would be able to claim £5,750 in motor expenses.
What do the HMRC mileage rates cover?
- Insurance and fuel
- MOT, servicing and repairs
- General wear and tear of your car
- Vehicle Excise Duty (road tax)
What isn’t included in the HMRC mileage rates?
- Motorway tolls
- Congestion charges
- Parking charges
- If you’re self-employed and VAT-registered, VAT on these costs.
However, if you incur these costs solely for business purposes you may be able to deduct them.
What else should I keep in mind?
Using HMRC mileage rates as self employed doesn’t completely get you out of record keeping. You still need to keep accurate records of your business mileage to support your claims to HMRC, since this rate is only available for journeys that are wholly and exclusively for business purposes.
That means that the flat rate does not cover any personal trips or commuting to and from work, so it’s important that you record your business mileage (see how here) to prevent any problems with inaccuracy penalties.
What if I have bought my car with a capital allowance?
You cannot use HMRC mileage rates if you used capital allowance when purchasing your vehicle. This is because this rate already factors in the value and depreciation of your car. If you’ve used capital allowance, you have to use the actual expenses method rather than a flat rate per mile for that vehicle.
What If I use the new cash basis?
The new cash basis, is for those whose turnover is less than £150,000.
This system allows you to deduct the initial price of goods vehicles and motorcycles (but not cars), and you can use either method of claiming expenses, as long as capital allowance wasn’t used to buy your vehicle. However, if you used a capital allowance, you can only use the actual expenses method rather than the HMRC flat mileage rate.
What if I drive a company car as a self employed?
A company car is a car which doesn’t belong to you personally but rather to your employer. When you’re self employed as a sole trader, you can’t technically have a company car because you and your business are the same legally.
How can I claim mileage expenses as a self employed?
Now that we’ve explained the two methods you can use to claim mileage as self employed, you can choose which suits you and your business best. For either method, you need to fill out a self assessment tax return before the tax year.
How can I claim other travel expenses as a self employed?
Any travel expenses incurred for business reasons are deductible but remember this does not include commuting between home and work every day.
Quick Tip – Discover an easier way to claim business mileage:
Here at Autotrip, we have developed an easy to use solution that helps you to keep track of your mileage claims.
Our plug and play GPS tracker records every single business trip you make and our software automatically calculates the amount that you can claim back, saving you time and a headache at the end of the tax year.
Learn more about how we make mileage simple on autotrip.com.