How to claim business mileage as an expense

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Date: 21 January 2020

A sales executive drives her company car home from a meeting with a client.

Business mileage applies to any trip in a personal or company-owned vehicle required for an employee to fulfil their job responsibilities, other than ordinary commuting.

Under UK tax law, an employee can request payments from their employer if they use their own vehicle for business mileage, or if they pay for fuel used in a company car out of their own pocket. The employer can then claim those payments as an expense against their corporation tax.

What counts as business mileage?

Journeys covered by the rules include, for example:

  • delivering orders;
  • transporting goods;
  • business trips to clients and partners;
  • travelling to a temporary work location.

Be aware that there is a 24-month rule under which, if you travel to the same temporary workplace for two years, it is considered a permanent place of work. A temporary workplace is also considered permanent if you spend 40% of the time during the working week in this location.

Moreover, if you are travelling, for example, between two buildings or between several locations within the same working area, you are considered an "area-based employee". In this case, transportation expenses will not be counted as business mileage.

Business mileage rates

According to the official GOV.UK guide to travel mileage rates and corresponding allowances, the compensation that can be claimed depends on the type of vehicle and its mileage:

Vehicle type

The first 10,000 business miles in the tax year

Each business mile above 10,000

Car or van

£0.45

£0.25

Motorcycle

£0.24

£0.24

Bicycle

£0.20

£0.20

For instance, someone who travels 30,000 business miles annually in a personal van can claim the first 10,000 miles * £0.45, plus £0.25 * 20,000, equals £9,500 in business mileage allowance. 

If it's a company car, the rates depend on the vehicle's engine size and what fuel they use: petrol, gas or electric. For example, a 2100cc engine running on petrol can claim £0.21 per mile, whereas a 1500cc engine running on diesel attracts just £0.09 per mile.

As these rates are constantly changing, you should check the current Advisory Fuel Rates tables and remember that previous allowances are valid for one month after a rates change.

Hybrid cars treated as either petrol or diesel, depending on their engine size. For electric vehicles, the rate is £0.04 per mile. 

Additionally, if you bring co-workers along on a work journey, assuming they are going for business reasons too, you can claim £0.05 extra per mile for each passenger. 

What mileage allowances can a sole trader claim?

As a self-employed person or sole trader, you can figure out your travel expenses in two ways: by deducting non-business mileage from the total amount you drove, or by calculating it the same way as an employee claiming for use of a personal car, using the simplified expenses method.

The first option applies if you are registered for (VAT), but you can use it even if you're below this level.

Example #1

Roger spent £1,100 on petrol. He drove 100 miles on business, and 800 miles for non-business purposes. The maths is simple: 100/800 = 0.125; £1,100 * 0.125 = £137.5 that he can claim for.

Example #2

Roger drives 11,000 business miles over the year. He can claim £4,750 (10,000 x £0.45 + 1,000 x £0.25 = £4,750).

Records when claiming business mileage

Without reliable records of your business trips, HMRC may well refuse to deduct your mileage expenses. Here is a list of what you need to note down:

  • dates and the duration of the trip;
  • start and end addresses;
  • miles travelled;
  • the purpose of the trip;
  • the amount you are claiming.

HMRC recommends storing these records for five years to ensure there have been no misunderstandings in the calculations, and avoid unwanted fines.

The bottom line

For precise mileage calculations, it would be wise to use specialised GPS devices as they can reliably collect the coordinates of your vehicle, backing up your claims. 

Alternatively, you can find a lot of mobile applications by searching "mileage tracker for work" mobile app stores. This data is important, as it will help you prove your claims to the HMRC authorities.

Copyright 2020. Doing business is a test of character - doing business papers shouldn’t be. Osome helps entrepreneurs establish all the accounting and bookkeeping records online 24/7 via one cloud-based platform.

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