Mileage Claim versus Expenses Claim – which is best for tax?

If you use a car for legitimate business journeys then you are able to claim related motor expenses against your business profits, which will help reduce your overall tax bill. There are a couple of methods for doing this. One is to claim back the business related percentage of your total costs. The other is to complete a business mileage claim. Here we compare the two methods and provide a free tool to record your mileage. 

Method 1 – the expenses claim

The first method of claiming back motor expenses is to calculate your total motor related costs in the year and deduct the percentage that relates to your personal use.

Allowable motor expenses include:

• Fuel
• Repairs & maintenance
• Road tax
• Insurance
• MOT
• Parking

 This method generally works best when you have very little personal use on the vehicle. It also works best if you are a sole trader. If you trade using a limited company then any personal use on the vehicle counts as a taxable benefit so adds a layer of complication.

This method also takes more organisation, as it requires you to keep all receipts as well as a mileage log, so you can work out the correct business:personal percentage for your tax return.

Method 2 – the mileage claim

The second method of claiming back motor expenses is to calculate your business mileage and multiply it by the government allowance per mile.

For 17-18 the allowance is as follows:

• 10,000 miles at 45p
• additional miles at 25p
• Motorcycles have a flat rate of 24p per mile
• For use of a bicycle you can claim 20p per mile

This method is easier to administer, as whilst you still need to keep an accurate mileage log, you don’t need to keep any receipts at all regarding your actual motor expenses.

Using this method, you are not able to claim for any additional motor costs, as the mileage rate is designed to take into account everything.

Directors of limited companies generally use this method, particularly as the rates are fairly generous.

Is your journey a business journey?

For both methods it is first important to understand what classifies as a business journey.

It is a common misunderstanding that travelling between your home and work classifies as a business journey – unfortunately it doesn’t.

Business journeys include, travelling to:

• see customers or clients at their office or place of work
• attend meetings away from your main place of work
• different work locations if you have multiple offices
• the post office, bank or to run other business related errands
• conferences and seminars

This is important when you record your business mileage as it will have an impact on both methods for claiming tax relief.

Can you claim back VAT on motor expenses?

There are added complications if you are registered for VAT.

If you are a sole trader and are registered for VAT, then you will need to use Method 1 – the expenses claim.

As a limited company, you have the choice to use either method, however when using the mileage method, VAT can only be claimed back on the fuel element of the mileage.

It can get technical, as there are some particular complications around claiming VAT on fuel.

In these cases it is always best to seek advice from your accountant, to ensure you proceed in the correct way.

Can you claim tax relief on the purchase of your vehicle?

If you use the expenses method, then it is possible to claim back a percentage of the purchase value each year as a capital allowance. The percentage is based on the vehicle emissions and exact nature of the vehicle.

If you use the mileage method, then there is no scope to claim anything against the purchase of the vehicle as depreciation is factored into the pence per mile.

There is a bigger question here though if you are a limited company, as if you seek to claim back a proportion of the vehicle value, this would classify the vehicle as a company car, which comes with a whole set of it’s own rules that need assessment.

If you are considering whether to include your vehicle as a company car, then take advice in advance from a professional accountant.

Generally speaking, most director’s of limited companies choose to use the mileage method, and keep their vehicle in their own name.

Next steps

It is the start of the tax year, so a good time to get organised with your mileage log.

• Firstly, understand the business journeys that relate to you
• Secondly, download our business mileage toolkit so you can accurately record your business mileage. This is necessary for both methods.
  
• Thirdly, save your fuel receipts and evidence of other costs, if you are to use the expenses method, or your business is VAT registered

Remember, the method you use largely depends on the proportion of business mileage you do, compared to your personal mileage.

The only way to accurately calculate the two methods is to record your mileage for a few months and then work with your accountant to prepare comparison calculations for the tax relief.