How to claim mileage allowance when you’re self-employed

In addition to petrol costs, using your own car, van or motorcycle will increase wear and tear, meaning you could be paying more in maintenance and repair bills. Keeping records of your travel will also help you understand the costs and benefits of using your own vehicle for work, and whether it might be better to consider leasing or hiring in future. Along with ensuring you also claim other allowable expenses such as parking.

When you use your own vehicle for self-employed business purposes, you may be able to claim a proportion of the actual total cost. This includes buying a car, van or motorcycle, and associated expenses including fuel, insurance, servicing and repairs.

To do this, you’ll need to keep accurate mileage allowance records for five years from your applicable tax submission, including all business mileage with the date, start and end addresses, and the total distance. And if you’re mixing personal and business use, you’ll need to keep records of both to calculate the work percentage. You’ll also need records of your insurance, repairs, servicing, parking and licence costs.

This can be time consuming, but it’s worthwhile if you rack up lots of miles every year or you have high road tax, insurance and fuel costs.

But sole traders can choose to use a flat rate mileage allowance as part of the simplified expenses offered by HMRC to make tax admin quicker and easier for the self-employed. For this, you just use a flat rate intended to cover all vehicle costs. You’ll only need to record your business mileage.

You won’t be able to choose the simplified option if you’ve claimed capital allowance for your vehicle, or included it in your business expenses. And you can’t switch at a later date to using actual costs for the same vehicle. But if you have multiple cars or vans, you can choose actual cost for some and mileage allowance for others.

If you’re self-employed, you can claim a mileage allowance of:

• 45p per business mile travelled in a car or van for the first 10,000 miles and
• 25p per business mile thereafter
• 24p a mile if you use your motorbike for business journeys.
• 20p a mile for bicycles.

You can also claim an additional 5p per mile for each extra passenger you’re driving for work purposes. So, if three of you are travelling together for business purposes, as the driver you’ll be entitled to an extra 10p per mile on top of your mileage allowance.

All figures are correct at the time of writing, and you can check the mileage and fuel rates approved by HMRC on the Gov.uk website.

You’re not able to claim mileage allowance for personal journeys, they must be “wholly and exclusively for business purposes”. And you also can’t claim for journeys to and from your usual place of work if you have an office or commercial business premises. But you’re still able to claim for travel to a temporary workplace, for example if you’re an IT engineer, electrician or plasterer who needs to travel to different sites and jobs to work.

A temporary workplace is defined as somewhere where you will spend less than 40% of your time, or if you don’t expect to work at that location for more than 24 months, as outlined in the HMRC Employment Income Manual. For the purposes of these rules, the location and journey have to change, so you can’t just reset the time limit by working at a premises next door to the original address. If you’re returning to a client, it will need to be after a break long enough that you haven’t spent more than 40% of your time at their location over the last 24 months.

You’re also unable to use the flat rate mileage allowance when you’re a limited company director, or if you’re using a vehicle designed for commercial use, such as black cabs, hackney carriages or dual control driving instructors’ cars.

And you can’t use simplified expenses for a vehicle if you’ve already claimed capital allowances for it, or included it as an expense when you worked out your business profits.

If you’re unsure about any elements of mileage allowance, or any self-employed tax guidance, it’s best to get specialist advice from an accountant. And IPSE members can find discounted accountancy and other services via partners in our Marketplace.

1. You’ve driven 1,200 business miles in your car during the year.
   Calculation: 1,200 miles x 45p per mile = £540
   Annual mileage allowance = £540
2. You’ve driven 10,000 business miles in your van during the year.
   Calculation: 10,000 miles x 45p per mile = £4,500
   Annual mileage allowance = £4,500
3. You’ve driven 12,000 business miles in your car during the year. Calculation: 10,000 miles x 45p per mile = £4,500, plus, 2,000 miles x 25 per mile = £500
   Annual mileage allowance = £5,000

It’s a good idea to log all of your business mileage, as this makes it easier to claim the right amounts when you’re submitting your tax returns. It will also be more credible if you have precise details of dates, miles travelled, journeys and reasons, especially when HMRC can request proof during an investigation.

Get into the habit of recording details after every journey which you may claim mileage allowance for. This can be done manually, but it can be time consuming to update a spreadsheet and easily forgotten after a long trip.

Various invoicing tools for freelancers and the self-employed include recording travel expenses, including mileage allowance. Or you can use dedicated apps such as Driversnote or Mile IQ which automatically track your journeys via the GPS on your phone, and allow you to log any related expenses quickly and easily. With Making Tax Digital applying to more self-employed businesses in the future, just make sure any invoicing or vehicle log software is HMRC compliant to avoid having to switch in the future.

Some self-employed business owners simply estimate their business mileage, by claiming for a percentage of their vehicle’s total annual mileage. So, if your car does 1,000 miles a month and you can show that half of that is for business use, you can claim a mileage allowance of 6,000 miles a year (ie £2,700).

If you’re using good accounting and invoicing software, and logging all of your journeys correctly, then you’ll save a lot of time and effort in completing your Self-Assessment tax return. And it will cut down the time required if you use an accountant to submit your details.

When you’re using simplified expenses and the flat rate mileage allowance, you’re not allowed to claim separately for motoring costs such as insurance, road tax or fuel, because these are included in the calculated amounts.

And don’t deliberately inflate your mileage. Inaccurate or overestimated numbers could trigger an HMRC investigation, and result in substantial penalties.

Visit government website Gov.uk to read Travel – mileage and fuel rates and allowances. There is also an online tool that enables you to Check if simplified expenses could save your business money.