While running your business, you may drive to client meetings, carry tools, transport stock or collect supplies. Because of this, vehicle expenses can take up a large part of your business budget. The good news is that you can claim many of these costs and lower your tax bill.
Vehicles expenses can offer strong tax savings when you handle them correctly. Choose a method that fits your work pattern and vehicle. A simple spreadsheet or a mileage app can make this so much easier.
What Counts as Business Use?
Business use includes any journey that links directly to your work. This includes trips to clients, suppliers, temporary job sites or places where you collect tools or materials. It also includes travel between different work locations on the same day.
However, commuting does not count. A drive between your home and your usual work location is personal. You also cannot claim for private trips or for journeys that mix business and personal reasons.
If you use your vehicle for both work and personal life, you must split the mileage. You can only claim the business part. If you cannot separate them clearly, then you cannot make a claim.
Your Options for Claiming Vehicle Expenses
If you work as a sole trader or a partner, you can claim vehicle expenses using one of two methods. You can claim your actual running costs or use a flat rate mileage method. A limited company cannot use flat rate mileage for vehicles it owns. However, a director can still claim mileage for using their personal vehicle.
Once you choose a method for a specific vehicle, you must use it until you replace that vehicle.
Option 1: Claiming Actual Costs
The actual cost method covers the real cost of running your vehicle for work. These costs include:
- Fuel
- Insurance
- Repairs and servicing
- MOTs
- Breakdown cover
- Vehicle tax
- Parking fees
- Tolls
- Hire charges
- Congestion charges
You must keep all receipts and record all business travel. To work out your claim, calculate the percentage of your business miles. So, if 40% of your total mileage relates to work, then you can claim 40% of your vehicle expenses.
Option 2: Using the Flat Rate Mileage Method
The flat rate methods keeps things simple and reduces admin work. You record your business miles and apply HMRC’s approved rates:
| Cars and Vans | 45p per mile for the first 10,000 miles each tax year 25p per mile after 10,000 miles |
| Motorcycles | 24p per mile |
| Carrying another worker | 5p per mile |
These rates cover all running costs, including fuel, insurance, repairs and wear on the vehicle. You only need an accurate mileage log. You can still claim parking fees, tolls and congestion charges separately.
Vehicle Expenses You Can and Cannot Claim
You can claim:
- Fuel
- Insurance
- Repairs and servicing
- MOTs
- Breakdown cover
- Vehicle tax
- Parking fees
- Tolls
- Hire charges
- Congestion charges
- Train, bus, taxi, tram or air fares
- Hotel stays for overnight business trips
- Meals during overnight business travel
You cannot claim:
- Private trips
- Commuting between home and your usual work site
- Fines or penalties
Leasing a Vehicle
Leasing gives you a way to spread the cost of using a vehicle. You only pay for the lease period and you avoid the upfront cost of buying.
If you trade as a sole trader or partner, you must calculate the business percentage of the least cost. So, if the vehicle has CO2 emissions above 110g/km and you leased it after April 2020, you must remove 15% of the lease cost before applying your business percentage.
If you trade through a limited company, the company can claim the lease payments. Additionally, if you use the vehicle for personal travel, you may face a Benefit In Kind charge. This means you pay tax on the value of your personal use.
Hiring a Vehicle
If you only need a vehicle from time to time, you can hire one whenever you need it. You can claim the hire cost and the fuel for that business trip. This keeps things flexible and removes long-term commitment.
Buying a Vehicle
If you buy a vehicle for business use, you may be able to claim Capital Allowances. This allows you to deduct part of the vehicle’s cost and therefore reduce your tax bill. The amount depends on the type of vehicle and its emissions.
If you use cash basis accounting and buy a car, you can claim Capital Allowances unless you use the flat rate mileage method. For vans and other vehicles, you can claim the purchase cost as a normal business expense.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.