As a Sole Trader wishing to claim travel expenses on a vehicle that is also for private use, only the business proportion of the use is an allowable expense. If your total vehicle expenses are £3,000 and one-third of your mileage is private, only £2,000 can be claimed against tax, two-thirds of the cost.
Claiming Vehicle Mileage Rates
As a sole trader you can compute your expenses using a fixed rate per business mile, if the annual turnover of your business is less than the current VAT registration threshold of £82,000 (2015/2016 tax year) when you first use the vehicle. HMRC use the VAT registration threshold as a convenient limit, the actual value of this limit is regularly reviewed. If there is a change in the VAT threshold or the turnover of your business increases and exceeds the VAT registration threshold, you should continue to use the mileage rate basis until the vehicle is replaced. You can only use the mileage rate basis if you apply it consistently from year to year. You can only change to, or from, an actual basis when a vehicle is replaced.
You may use a mileage rate if you use a car, van, pick up, bicycle or a motorcycle for business purposes. Taxi drivers may also use a mileage rate if they use one of these vehicles as a taxi or for private hire.
The mileage rates by vehicle type are:
|Car or Van
||Each business mile up to 10,000
||Each business mile over 10,000
||All business miles
||All business miles
The number of people in the vehicle does not affect the rates.
You can only claim the amount per mile basis for journeys that are wholly and exclusively for business purposes, not for private journeys such as travel from home to work, or that serve both a business and a private purpose.
The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle. If you use the mileage rate basis you cannot claim any additional amount for these expenses.
The mileage rate does not cover costs that are specific to a particular journey such as tolls, congestion charges and parking fees. These will be allowable as a deduction where they are incurred solely for business purposes.
If you use the mileage rate basis you can’t claim Capital Allowances in addition as the payment rates already contain an element for depreciation. This also applies if you have a hire purchase or finance lease arrangement. You can claim the business proportion of the interest on a loan used to purchase the vehicle, or the finance element of a hire purchase or finance lease.
It is not necessary for a person who claims the mileage rate to be the legal owner of the vehicle. If you are claiming the expense then you should be paying the costs of running and maintaining the vehicle.
Actual Mileage Expenditure
If you don’t apply the vehicle mileage rates you need to keep detailed records of actual expenditure and deduct the actual amount spent. You need to be able to support the expense claim and show that the journey was made wholly and exclusively for business purposes.
Use of a Hire Car
Occasionally you may need to hire a car, either for a specific journey or if your own car is being serviced or repaired. If you regularly use your personal car for business travel and claim mileage rates you cannot claim the cost of the hire car, you should continue to claim the authorised mileage rates.
If you don’t use your personal car for business and you hire a car in your own name for business journeys, the hire costs and fuel are an allowable expense. If the hire car is used for personal use a proportion of the hire costs will be disallowable.
Hiring a car abroad specifically for business purposes is an allowable expense and the hire costs and fuel can be claimed.
Occasional business journeys outside the normal pattern
Extra costs may be incurred for business purposes where occasional business journeys outside the normal pattern are made. Modest expenses incurred in these circumstances may be deducted from business profits. HMRC allow that, where a business is by its nature itinerant, that is, you do not have a base but work at customer sites, travelling from site to site to perform your work, expenses may be claimed in relation to the associated costs.
Accommodation and Subsistence
The cost of food, drink and accommodation is not in general an expense incurred wholly and exclusively for business purposes. They are (either wholly or partly) normal costs of living incurred by all and not as a result of trading. You will not be able to claim costs incurred from the necessity of lunching away from home or the place of business.