Claiming Motor Expenses When Self Employed – Which Method?

Tax Guide for claiming vehicle expenses

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If you are self-employed one of the most common expenses is your car or van. There are two ways in which you can claim this expense against your income.

The direct method or by using HMRC’s fixed rate one. Obviously it is important to know which one would be more beneficial for you. I will show you examples of both methods and depending on your circumstances you should be able to work out which one suits you. Whether it is more advantageous to claim mileage or claim a percentage of total running costs will depend on the number of miles driven and the cost of the vehicle – you have to weigh up each method and pick the one that maximises your claim.

The direct cost method

First of all you need to work out your business use of the vehicle. Keep a record of the miles you drive for business and compare it to the total miles driven to work out the business use percentage. You can only claim the business proportion of expenses.

Let’s say this was 60% for business, you then apply this fraction to your total running costs. Add up your total motor running costs for the year or period, fuel, Maintenance, Insurance, road tax, etc, and apply the 60% business use to arrive at the amount of expenses you can claim. You can also claim interest on a loan for the purpose of buying the vehicle.

You may also be able claim Capital Allowances for the cost of the the vehicle. Normally the allowance (writing down allowance) for cars will be 20% of the cost per annum on a reducing balance basis. For vans you could claim the Annual Investment Allowance which is 100% of cost subject to private use, of course.

You can also claim a 100% first year allowance on new unused cars with low CO2 emissions of not more than 110g/km.

However, cars that have CO2 emissions of more than 160g/km can only claim 10% of the cost per annum.

HMRC Fixed Rate scheme

This is much simpler. You still have to keep a record of your business miles though. The rate includes all running costs, capital allowances (depreciation) but excludes interest on a loan to buy the vehicle which can still be claimed if you use this method.

HMRC will allow you to claim 45 pence per mile for the first 10,000 miles in a year and 25 pence thereafter. For example if your business miles were say 5,000 for the year. 5,000 x 45p = £2,250 can be claimed. You can also claim 24p per mile for a motor cycle and 20p per mile for a bicycle.

Car Expenses for Self-Employed

If you're self-employed and use your own vehicle for work, you may be able to claim car expenses for self-employed as an allowable business expense. HMRC allows sole traders to claim vehicle costs using either the simplified mileage method or the actual expenses method. The right option depends on how you use your vehicle and which method gives the greatest tax benefit. Understanding your car expenses self-employed can help reduce your taxable profit while ensuring you remain compliant with HMRC rules.

Self-Employed Mileage Explained

Many sole traders choose the simplified mileage method because it is easier to manage. Self-employed mileage claims are based on HMRC's approved mileage rates rather than your actual running costs. You simply record your business journeys and multiply the miles travelled by the applicable mileage rate. This method is often ideal for businesses that want straightforward record keeping.

Cars for Self-Employed Businesses

Whether you drive a personal vehicle or purchase one specifically for your business, understanding the tax rules around cars for self-employed individuals is essential. If your vehicle is used for both business and personal journeys, you can only claim the business proportion of allowable expenses unless you're using the HMRC mileage method, which already accounts for most running costs.

Self Assessment Vehicle Expenses

When completing your tax return, it's important to report your Self Assessment vehicle expenses correctly. HMRC may request evidence to support your claim, so you should keep records of business mileage, fuel receipts, servicing invoices and any other relevant vehicle expenses. Accurate records make completing your Self Assessment much easier and help reduce the risk of errors.

Self-Employed Car Allowance

Unlike employees who may receive a company car allowance, most sole traders do not receive a separate self-employed car allowance. Instead, self-employed individuals claim tax relief by deducting eligible business vehicle expenses from their taxable profits. This can be done through the mileage method or by claiming actual vehicle running costs.

Tax Relief on Van Purchase for Sole Traders

If you're considering buying a van for your business, you may qualify for tax relief on van purchase as a sole trader. In many cases, vans are treated differently from cars for tax purposes, and you may be able to claim capital allowances or other forms of tax relief depending on your accounting method. Always ensure the van is used for business purposes and keep records of the purchase.

Please note: You cannot change from one method to another. Whatever method you adopt you have to stay with until you change the vehicle.