Motor expenses you can claim if you're self employed

Did you know you can claim a mileage allowance for bicycles? Claire Georghiades FCA of AccountsResource explains how to work out what motor expenses you can claim if you're self employed

When are motor expenses classed as an "allowable expense"?

An expense is allowable as a deduction only if it is incurred "wholly and exclusively" for business purposes.

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Motor expenses are therefore classed as an "allowable expense" if the mileage is wholly and exclusively for business purposes. It can include travel to a temporary work place but it doesn't include:

  • normal travel between home (or anywhere that is not a workplace) and your permanent workplace;
  • private travel.

Calculating motor expenses

There are two ways of working out motor expenses if you're self employed:

  • a fixed rate for each mile travelled on business, using HMRC fixed mileage rates (the 'mileage method');
  • actual expenses, using detailed records of business and private mileage (the 'actual cost method').

The mileage method

If you choose to use the mileage method, there are conditions you must comply with:

  • The rate used cannot exceed the mileage rate for the vehicle at the time it is used. The current rates are shown below.
  • The annual turnover of the business at the time the vehicle is acquired cannot exceed the VAT threshold.
  • No other motoring expenses (other than interest on a loan to purchase the vehicle) can be claimed.
  • You must use this rate consistently every year until you replace the vehicle.

The mileage method applies to cars, vans, motorcycles and bicycles.

Approved mileage rates

From 2011/12

First 10,000 business miles in the tax year

Each business mile over 10,000 in the tax year

Cars and vans

45p

25p

Motor cycles

24p

24p

Bicycles

20p

20p

We strongly recommend that if you use this method you keep a detailed record of all journeys, including date, purpose and destination. This is not too onerous if you keep this as part of your diary.

The actual cost method

If you choose to use the actual cost method instead, you must keep records of all motoring costs. This may include:

  • fuel/oil;
  • insurance;
  • vehicle tax;
  • repairs/servicing;
  • parts;
  • recovery subscription;
  • MOT.

If the vehicle is used for both private and business purposes, you can only claim for the proportion of the costs that relate to the business use. Therefore you also need to keep track of your business mileage in the year, compared to your total mileage for the year. This will give you the proportion of costs that relate to business use.

You must make a note of the mileage reading at the start and end of your accounting period when you use this method.

Under the actual cost method (but not the mileage rate method), you can also claim capital allowances, but these are restricted to the business use of the vehicle.

A note of caution

It is recommended that for the first year of any new vehicle, or a new business, you keep track of both your business mileage and your actual motor expenses to work out which method to use. This is because once you have opted to use one method, you cannot change until one vehicle is replaced by another.

What is allowable depends on the individual circumstances, and it's always best to ask an accountant if you're unsure.

Written by Claire Georghiades FCA of AccountsResource.

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