Claiming business mileage and vehicle expenses correctly helps UK early-stage founders and e-commerce sellers reduce their tax liability without risking disputes with HMRC. The key is maintaining accurate records and using the approved methods for mileage rates or actual costs, depending on your business structure and vehicle type.
Rules change regularly so always verify the latest guidance on GOV.UK or with HMRC. This guide explains the main approaches, what records to keep, how electric vehicles are treated and the differences between sole traders and limited companies.
Understanding Approved Mileage Allowance Payments
HMRC publishes approved mileage rates that allow self-employed individuals and employees to claim tax relief on business travel without needing to calculate actual running costs. These rates cover fuel, maintenance, insurance and depreciation in one simple figure per mile.
For sole traders the approved rate can be used for the first set number of business miles in a tax year. After that a lower rate applies. Limited company directors who own the vehicle may also use these rates but the company must reimburse them correctly to avoid benefit-in-kind charges. Check current GOV.UK rates before calculating any claims.
Practical example: If you drive 80 miles to visit a supplier and return, record the exact business purpose, date, destination and total miles. Multiply the approved rate by the miles to work out the claimable amount. Keep the calculation with your other records.
Choosing Between Mileage Rates and Actual Vehicle Costs
Self-employed people can choose each year whether to claim using approved mileage rates or to deduct the actual costs of running the vehicle. Once chosen for a vehicle you must usually stick with the same method for its lifetime. Switching is possible but requires careful timing and HMRC notification.
Claiming actual costs means tracking every expense: fuel, servicing, MOT, insurance, road tax and repairs. You then apportion the total between business and private use. This approach can produce a larger deduction when business mileage is high or running costs are above the approved rate, but it demands far more record keeping.
Limited companies normally claim actual costs through the business accounts rather than mileage rates. Directors using their own car must follow strict reimbursement rules. Review both options each year and select the one that best suits your current trading pattern. Always confirm the latest rules on GOV.UK before deciding.
Capital Allowances for Vehicles
Capital allowances let businesses deduct a proportion of a vehicle’s purchase cost from taxable profits over time. The writing-down allowance rate depends on the vehicle’s CO₂ emissions and whether it is new or used. Low-emission and electric vehicles usually qualify for more generous treatment.
For sole traders and limited companies the allowance is calculated on the business-use percentage of the vehicle. Business-use percentages vary; benchmark against your own data and records. The remaining balance is carried forward to the next year.
Steps to claim:
- Keep the purchase invoice showing the total cost including VAT where appropriate.
- Record the date you started using the vehicle for business.
- Calculate the private and business mileage split for the first year and keep evidence.
- Apply the correct writing-down rate published by HMRC for that tax year.
Check the current capital allowance rates and qualifying criteria on GOV.UK as they are updated regularly.
Electric Vehicles and Special Considerations
Electric and ultra-low-emission vehicles receive favourable tax treatment. Capital allowances are often higher and there may be additional incentives for charging infrastructure. Business mileage in an electric vehicle can still be claimed using approved rates or actual costs, but electricity costs replace fuel receipts.
Keep meter readings or home electricity bills and apportion them according to business mileage. If the vehicle is charged at public points, retain the charging receipts and note the business purpose. Companies providing electric cars to directors should check the current benefit-in-kind rules, which tend to be lower for zero-emission models.
Document the exact model, its CO₂ rating (zero for pure electric) and the date of purchase. These details affect the allowance rate and any grants available. Always verify the latest GOV.UK guidance because incentives for electric vehicles change frequently.
Record Keeping Requirements
Accurate records are essential. HMRC can ask for evidence up to several years after a claim. Keep a mileage log that shows for every business journey: date, start and end locations, purpose of the trip, total miles driven and any supporting notes such as client name or supplier order number.
Store digital or paper copies of fuel receipts, servicing invoices, insurance documents and purchase invoices for the vehicle. For actual cost claims you must also retain a summary of total miles driven in the year so you can calculate the business percentage accurately.
Many free or low-cost mileage apps allow you to record journeys in real time using your phone’s GPS. Export the data at the end of each quarter and match it to your accounting records. Make sure the log cannot be altered after the fact. Update your records at least monthly so the information stays fresh and complete.
Both sole traders and limited companies must retain these records for the required period set by HMRC. Losing them could mean losing the entire claim and facing penalties.
Differences for Sole Traders and Limited Companies
Sole traders report vehicle expenses on their self-assessment tax return. They can choose mileage rates or actual costs each tax year (subject to the lifetime rule for a given vehicle). Capital allowances are claimed as part of the capital allowances section.
Limited companies claim expenses through the company accounts and Corporation Tax return. Directors using personal vehicles usually submit mileage claims to the company for reimbursement. The company can then deduct the payment as a business cost provided it follows HMRC rules. If the director owns the car, capital allowances are claimed personally on their self-assessment for the business-use portion.
Company directors must be particularly careful with private use. Failing to separate business and personal mileage correctly can create taxable benefits. Review your company’s policy on vehicle claims and keep director loan accounts up to date if personal costs are paid through the business. Consult the latest HMRC guidance or Companies House requirements as thresholds and reporting rules change.
Putting It All Together at Loomworks
Early-stage founders balancing product development, sales trips and admin can simplify their vehicle expense process by choosing one consistent method and maintaining a single digital log. Set a calendar reminder each quarter to export mileage data and file receipts. This habit reduces stress when accounts are prepared and helps demonstrate good governance to future investors or mentors.
Loomworks in Liversedge supports selected UK founders with free desks, a registered address and practical mentoring. Discussing your record-keeping system with an experienced operator there can highlight improvements before your first full tax return.
Frequently asked questions
Can I claim mileage if I use my personal car for business?
Yes. Both sole traders and limited company directors can claim business mileage. Sole traders use approved rates or actual costs on their self-assessment. Directors usually claim reimbursement from the company. Keep a detailed mileage log showing business purpose for every journey.
What records do I need for capital allowances on a van?
Retain the purchase invoice, proof of when you started using it for business, and a record of total annual mileage split between business and private use. Apply the correct writing-down allowance rate each year. Check current GOV.UK rates as they change.
Are electric company cars taxed differently?
Electric vehicles generally attract lower benefit-in-kind charges for directors. Capital allowances are often 100 % in the first year for qualifying new electric cars. Keep evidence of zero emissions and business use percentage. Always confirm the latest HMRC rules.
How long must I keep mileage records?
HMRC normally requires records for at least five years from the 31 January following the tax year. Store digital logs, receipts and calculations safely. Losing records can lead to disallowed claims and penalties.
Should I switch from mileage rates to actual costs?
Only switch if your actual running costs significantly exceed the approved rate and you are prepared for extra paperwork. Once you claim actual costs for a vehicle you usually cannot revert. Review your annual mileage and costs before deciding and check current GOV.UK guidance.
Related reading: Risks and Rules of Using Your Home Address for Business, Do You Need Any Licences or Permissions to Sell Online?, UKCA Marking Requirements for Products Sold in Great Britain. Browse all company admin & legal guides or apply to Loomworks.