If you work for yourself, there’s a good chance that you will be able to claim motor expenses for running your business.  You may visit customers, suppliers, trade fairs, exhibitions, the bank and a whole host of other places in the course of running your business.  There are a couple of different ways to claim the cost, but keeping a log of your miles may be a good idea regardless.  We’ve identified 4 different times when this may be the case.

1. Sole trader – actual cost

If you use a vehicle for business which you claim the actual running costs (i.e. fuel, road tax, insurance, servicing, etc..) and you also use it for private use, then a record of business mileage will make any private disallowable proportions more robust if challenged.

2. Sole trader – pence per mile

If you are a sole trader and you claim mileage on the ‘pence per mile’ basis, then keeping a log of business mileage is essential.

3. Limited company – mileage claim

The default motor expense situation for company directors of small limited companies is to use their own personal cars for doing business travel.  Therefore, a detailed claim of mileage incurred is robust and will stand up to scrutiny.

4. Company van

If a company is paying the running costs of its vans, why would it want to keep a mileage record?  Because situations exists where a van is used simply for home to work travel and business travel, which avoids a benefit in kind on the driver.  A record of business mileage is further proof that a van is not being used for personal travel.

If you use your own vehicle for business use – either within your own business or as an employee working for someone else – you will be aware of the concept of being repaid for the mileage you do on a ‘pence per mile’ basis.  The following is a simple explanation of how this may affect you in the more common situations that it happens.

Premise and Limits

If you use your own vehicle for business use, you can claim the following:

For tax years up to 5 April 2011

1^st 10,000 miles           40p per mile

Subsequent miles        25p per mile

For tax years from 6 April 2011

1^st 10,000 miles           45p per mile

Subsequent miles        25p per mile

NB these limits are for individuals using their own car for business use.  If they have a company car, the limits are different, please see here.

So how does this affect you?

Sole Trader

If you trade as a sole trader and your turnover is less than the VAT registration threshold (currently £73,000), you have the option of either claiming business mileage as described above or using the actual costs incurred, restricted for private use.

If you choose the mileage system, you have to stay with that method until you change your car.

Company Director

If you are a company director, there are many issues of having your car owned by the company.  In general, due to the capital allowances for the company being poor and the creation of a Benefit in Kind, or ‘perk’, we recommend that directors retain personal ownership of their cars and claim mileage from the company.

Employer

If you are an employer, and your employees use their own cars, the limits above are just that - limits.  You can pay anything up to those limits.  Paying above those limits will have PAYE consequences.

Employee

If you have been paid mileage as an employee and it is below the limits mentioned above, you can claim tax relief on the balance.  For example, if you have been paid 5,000 @ 30p, you can claim tax relief on 5,000 @ (40p-30p) = tax relief on £500.  For a normal rate taxpayer, this would result in a tax saving of £100.

NB where you have an option in the areas surrounding mileage, such as whether to claim actual cost or mileage, whether to have a company car, or whether to pay your employee less than the limit, the generic advice above may be dependant upon your circumstances, and we would recommend that you get professional advice.