Mileage allowance for the self-employed

PUBLISHED JUL 28, 2020 • 6 MIN READ

This part of our guide will walk you through the rules on tax deductions and claims for your business mileage if you are self-employed in the UK. Here you will find answers to the following questions:

  • How can I claim business mileage if I am self-employed?
  • What can I claim if I use my vehicle for both business and private purposes?
  • What is the best way for me to claim my business mileage?
  • What records do I need to keep?

What are the need-to-know tax rules for vehicle expenses?

If you are self-employed, you are able to deduct some of your business costs from your profit before tax. The expenses you can claim are called allowable business expenses, and your vehicle business expenses are covered by this scheme.

Before we get into how you can claim mileage and other expenses for your work vehicle, there are some general rules you should be aware of. 

If you use a Trading Allowance:

If you make use of the tax-free Trading Allowance, you will not be able to claim any allowable business expenses, including vehicle costs. If you want to know more about why you cannot claim other allowable costs, you can read HMRC’s article on Trading Allowance.

If you have a limited company:

If you run your own limited company and use your private vehicle for work, you will be able to pay yourself Mileage Allowance Payments (MAPs) from your company and claim other business travel costs as allowable business expenses (e.g. parking fees, train fares, accommodation).

If your limited company owns the vehicle, you will only be able to claim Advisory Fuel Rates (AFR) set by HMRC and the company will take on the expenses of vehicle maintenance and other travel expenses.

If you also drive your vehicle for personal purposes:

If you use your vehicle for both personal and business purposes, you will only be able to claim expenses for its business use. To accurately manage this, you will need to regularly record your total mileage - both for private and business trips. You will also need to keep in mind HMRC’s rules on what passes as business travel.

Be aware of what is considered a "business trip":

HMRC defines a business trip as any of the following:

  • Travel between your permanent workplace and your temporary work (e.g. visiting clients or suppliers)
  • Travelling between temporary workplaces
  • Travel between two workplaces in the same employment
  • Travelling from home to another workplace if “home” is your permanent workplace due to the requirements of the job.

One key thing to note - if you work from an office and not from your home, you can’t count commuting to and from work (your permanent workplace) as a business trip.

How do I claim mileage if I am self-employed?

If you are self-employed, you have two options for how you can record and claim mileage and other vehicle expenses for your business: using actual vehicle costs or simplified expenses (mileage rate).

You should carefully consider which one you want to use. Using actual vehicle costs is more time consuming but gives you the most accurate reading of your actual vehicle expenses. Using a mileage rate is a simpler solution, but may not properly reflect your actual vehicle costs.

If you are unsure of which method will suit you best, try out HMRC’s simplified expense checker. This tool will help you find the best solution for yourself and your business.

How do I calculate my actual vehicle costs?

One method of claiming mileage and other vehicle-related expenses if you’re self-employed is to record all costs incurred from using your vehicle for business trips. At the end of the tax year, you will be able to deduct the costs from your company’s taxable profit.

This way of claiming vehicle costs might be better for you if your vehicle expenses are high due to high road tax, insurance, fuel consumption, etc. However, it is a more time-consuming way of recording your vehicle expenses.

The vehicle costs you can deduct include:

  • Fuel
  • Vehicle insurance
  • Repairs and maintenance
  • Servicing
  • Breakdown cover
  • Parking
  • License fees

There are other allowable travel expenses you can claim besides your vehicle costs. These are accommodation and meal prices for business trips, journeys with other vehicles (e.g. train or airfares) and car hire charges. You can read more about travel expenses on HMRC’s website.

What about simplified vehicle expenses?

The aptly-named simplified expenses method is great if you want to save time by not having to log all your vehicle expenses. Instead, you calculate your vehicle expenses using a flat rate set by HMRC. The flat rate is meant to cover all vehicle business expenses, just like the standard mileage allowance; that would be fuel, servicing and repairs, maintenance, depreciation, and insurance and road tax.

Keep in mind you can’t use simplified expenses if you have claimed capital allowance for your vehicle or have included it in your business expenses.

Also, if you use the simplified expenses method for your vehicle, you can’t switch to actual vehicle costs as long as you still use that same vehicle for work. You can, however, switch from actual vehicle costs to simplified expenses.

See the approved mileage rates from HMRC in our article on current mileage rates.

Other allowable expenses you can claim on top of the simplified expenses method are parking fees, journeys with other vehicles (e.g. train tickets), car hire charges, accommodation and meal prices for work-related trips.

What records do I need to keep to claim my mileage & vehicle expenses?

As a self-employed taxpayer, you are required to keep accurate records of all your personal income and business expenses as proof for your tax return. You are required to keep your records for five years from the submission deadline of the applicable tax year in case HMRC audits your business.

Required records for the actual expenses method:

You should record all your business mileage, including the date, start and end addresses -  including postcode - and the total distance travelled for each trip.

Other vehicle-related expenses you should record and keep receipts of:

  • Vehicle insurance
  • Repairs
  • Servicing
  • Parking
  • License fees

Required records for the simplified expenses method:

If you use the simplified expenses method, you will only need to log your business mileage, including the following details:

  • Date of trip
  • Start and end address of each trip, including postcode
  • Distance travelled

How can I keep track of my business mileage?

You can either track your business mileage manually or automatically. Manually recording miles (including date and addresses) can be done through a logbook or a spreadsheet. The medium doesn’t matter as long as it contains the correct information as described above. 

Another option is an automatic app tracking service that will log all your business trips for you - it will save you time and provide accurate information of your mileage. Driversnote is one of these, working both on Android & iOS, but there are others out there who also produce compliant reports of your business mileage, and we encourage you to have a look around.

So how do I claim expenses for my vehicle on Self Assessment?

To claim your actual vehicle costs on Self Assessment, you must:

  • Go through your records and add up all vehicle expenses.
  • Add all your vehicle expenses to all other allowable expenses.
  • Include the total amount on your Self Assessment tax return.

Alternatively, to claim vehicle costs using the simplified expenses method, you must:

  • Keep a record of the business mileage you have travelled throughout the tax year.
  • Multiply business miles travelled with the simplified expenses rate for the whole tax year.
  • Include the amount in your total expenses on your Self Assessment tax return.

You don’t need to submit your records for either method when filing your tax return. However, you should keep them for five years as proof that the information you have declared is correct.

 

That's it for our guide to mileage in the UK for the self-employed! We hope we've been of assistance :)

Happy tracking!

 

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This material has been prepared for general informational purposes only and is correct at the time of publishing. It should not be taken as professional advice from Driversnote. We recommend seeking independent legal, taxation, or financial advice from a professional to check how this information relates to your own circumstances.