Claiming Business Vehicle Expenses: A Complete Guide
Introduction
You have a car, you use it for work, so you want to include it as a business expense—simple, surely?
Unfortunately, it’s not that straightforward. Travel expenses, particularly motor expenses, are more complicated than you might think. This guide explains what counts as business travel, how to claim expenses, and the different methods available for both sole traders and limited companies.
What Counts as Business Travel?
To determine what you can claim, you first need to establish why you are making the journey. Business mileage is any journey that is solely and directly related to your business. This does not include your normal commute to and from your usual workplace, but it does include:
- Travel to client meetings.
- Trips to purchase materials.
- Journeys to your accountant or other business service providers.
Once you have determined which journeys qualify, it’s essential to keep an accurate record of your business mileage.
How Do I Claim for Motor Expenses?
There are two main methods of claiming motor expenses:
- Full Cost Method – Claim the total running costs of the vehicle, adjusting for any personal use.
- Mileage Method – Claim a fixed amount per mile for business travel based on HMRC’s rates.
1. Sole Trader
If you are a sole trader (or partnership) and are not VAT registered, you can choose either method.
Full Cost Method
Best suited for those using their vehicle mainly for business.
Can Claim:
- Fuel
- Repairs and MOT
- Insurance, tax, and breakdown cover
- Cost of the vehicle (through capital allowances)
Cannot Claim:
- Private use mileage
- Fines and penalties
To calculate personal use, divide business miles by total miles in the year. If 75% of your mileage is business-related, you can claim 75% of the expenses.
Mileage Method
Best if your vehicle is used mostly for personal journeys but has occasional business use.
Can Claim:
- Business mileage at 45p per mile (up to 10,000 miles) and 25p per mile after that
- Toll charges, congestion charges, and parking
Cannot Claim:
- Private use mileage
- Fuel, repairs, insurance, tax, or breakdown cover
- Cost of the vehicle
If you have multiple vehicles, journeys in all of them can be included in this calculation.
2. Limited Company
A limited company director is considered an employee, which affects how vehicle expenses are treated.
Full Cost Method
The vehicle is owned by the company, and personal use is a taxable benefit.
Can Claim:
- Fuel, repairs, and MOT
- Insurance, tax, and breakdown cover
- Cost of the vehicle (via capital allowances)
Cannot Claim:
- Personal mileage (must be declared as a benefit-in-kind)
- Fines and penalties
If the company provides a vehicle for business and personal use, it must be reported on your personal tax return and P11D.
Mileage Method
The vehicle remains privately owned, and the director claims a mileage allowance from the company.
Can Claim:
- Business mileage at 45p per mile (up to 10,000 miles) and 25p per mile thereafter
- Passenger allowance (5p per mile)
- Toll charges, congestion charges, and parking
Cannot Claim:
- Private mileage
- Fuel, repairs, insurance, tax, or breakdown cover
- Cost of the vehicle
FAQs
1. What qualifies as business mileage?
Business mileage includes any journey made solely for work, such as meeting clients, buying supplies, or attending business events. Your daily commute does not count.
2. How do I track business mileage?
Keep a detailed log of journeys, including:
- Date and purpose of travel
- Starting and ending locations
- Mileage covered
Apps like MileIQ or QuickBooks Self-Employed can automate tracking.
3. Can I claim parking costs?
Yes, parking fees for business travel are allowable. However, parking fines and penalties are not claimable.
4. What happens if I don’t keep mileage records?
Without records, HMRC may disallow your claim. If you missed tracking, use a reasonable estimate, but it must reflect actual business usage.
5. Can I switch between the mileage and full cost method?
Sole traders can switch each tax year. However, once you’ve claimed capital allowances for a vehicle, you must continue with the full cost method.
6. Can I claim expenses for more than one vehicle?
Yes, as long as each vehicle is used for business travel, expenses can be claimed across multiple vehicles.
7. Can I claim the cost of a vehicle outright?
No. You can only claim it through capital allowances, which spread the cost over multiple years.
8. Do electric vehicles qualify for different tax benefits?
Yes. Electric cars can benefit from lower benefit-in-kind tax rates and enhanced capital allowances.
9. What if I use my car for both business and personal travel?
You must only claim the business portion of expenses. Use mileage tracking to separate business and private use.
10. Should I consult an accountant?
Yes! Vehicle expense claims can be complex, and an accountant can help optimize your claim while ensuring compliance.
For further advice, feel free to contact us at richard@cheltenhamtaxaccountants.co.uk.