When you are a sole trader and use a car or van for your work you have two different methods of claiming mileage / travel costs. What you must remember is that once you have chosen which method to use you must stick with that method for the life of that vehicle.
First you need to check that your travel is allowable business travel, see HERE.
Assuming your travel is allowable you then have two options:
Method 1 – Mileage rates
This is the simplest method. You simply keep a mileage log of all work journeys (journeys that are seen to be ‘commuting’ are not allowable - see our other article 'What is Business Travel'). Note the date of journey, start point, end point, purpose of journey and total number of miles. At the end of the year if you give us the mileage log we will work out how much deduction we can put through. The rate is currently 45 pence per mile for the first 10,000 miles and 25 pence per mile thereafter.
We have provided you with a Mileage Log Template at the bottom of this guide.
We have provided you with a Mileage Log Template at the bottom of this guide.
Please note that you can only use the mileage rate method if at the point the car is first used for the business your business is below the VAT threshold rate. This is currently £83,000. If you are above this rate you would have to use method 2, discussed below.
Method 2 – Actual costs less private element deduction
This is more complicated but can be more tax efficient, depending on your level of use. Using this method you keep a tally of all motor expenses which will include road tax, insurance, fuel, repairs and maintenance and breakdown cover. Also if you have bought your vehicle on a lease you can include the interest costs. Warranty costs can also be included but must be spread over the life of the warranty which may for example be three years.
The purchase cost of the vehicle is a capital item so is dealt with through a treatment called ‘Capital Allowances’. If you have bought a Van it will be eligible for the Annual Investment Allowance (AIA) so potentially the entire cost could be offset in the first year. Car’s however are not eligible for the AIA. The rate at which you claim the allowances varies depending on when it was purchased and the emissions rate.
When you sell the vehicle the value it is sold for must be taken into account as well so you could end up with a balancing amount which is taxable.
The purchase cost of the vehicle is a capital item so is dealt with through a treatment called ‘Capital Allowances’. If you have bought a Van it will be eligible for the Annual Investment Allowance (AIA) so potentially the entire cost could be offset in the first year. Car’s however are not eligible for the AIA. The rate at which you claim the allowances varies depending on when it was purchased and the emissions rate.
When you sell the vehicle the value it is sold for must be taken into account as well so you could end up with a balancing amount which is taxable.
The key element when using this method of calculation is working out the percentage of your vehicle that should be disallowed because of private use. In theory you should keep a detailed mileage log of all work journeys and note the mileage at the beginning and end of the financial year. This will allow you to work out the exact personal element. However this is not always feasible. It is acceptable to keep a mileage log for a ‘snap shot’ period of, say, three months and work out the private element from this. This area of judgement is one of the most looked at by HMRC so make sure you do not over claim and can justify your claim.
Remember these methods of claiming vehicle costs are only relevant for the self-employed, if you operate through a limited company the rules are very different.
MILEAGE LOG TEMPLATE:
MILEAGE LOG TEMPLATE:
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