Business mileage is an important – but often overlooked – expense for sole traders, contractors, and directors employed by their limited companies.
Business mileage covers the miles you travel for business purposes, such as travelling to a client. You must only claim for journeys that are “wholly and exclusively” for business purposes – your daily commute or any personal trips taken in your vehicle don’t count!
Business mileage is an expense which reduces your company or sole trade profits, and therefore the amount of tax you pay at the end of the year. In short, claiming business miles is good news for you and your business.
Both company directors and self-employed sole traders can claim. If you have an employee, they would be able to claim from you as their employer. If you don’t pay them business mileage, or you pay them less than the HMRC approved mileage rates, they can make a claim to HMRC at the end of the tax year for the difference.
It’s usually best to claim back your mileage using the HMRC approved mileage allowance payments (AMAP rates on Gov.uk) for businesses. The AMAP rates include the general running costs of your car like maintenance and insurance.
Here are the current HMRC business mileage rates for cars, vans, motorcycles, and bikes:
|Mode of transport||First 10,000 miles||Over 10,000 miles|
*Only limited companies can claim mileage for bikes – not sole traders
HMRC do not allow business mileage to be claimed by sole traders using a bicycle, which is rather unfortunate for those green-minded among you, or even cycle couriers. However, you may be able to claim the costs of buying a bicycle for work and consumables such as tyres or maintenance. Any personal use of the bicycle is likely to reduce the amount you can claim. It’s best to speak to an accountant or your local tax office to confirm what you can claim.
It’s important to keep a record of all business journeys you make as evidence to support any claim you make.
To ensure that you can claim back mileage as a sole trader, director, or for your employees, the following records should be kept:
If there is an HMRC inspection it will involve checking that your entire expense claim system is fit for purpose. This means relevant receipts are retained to support corresponding claims, and the amount of expenses recorded in your company accounts or sole trader records match the amount claimed – so it’s important you keep all relevant records whether it’s for you as the company director, a sole trader or an employee claiming mileage.
HMRC Advisory Fuel Rates are the recommended amounts when you are reclaiming the fuel element on business mileage in a company car. HMRC reviews these rates every quarter.
These rates only apply to Standard Rate VAT registered companies. They’re used to calculate:
From 1st September 2020, the Advisory Fuel rates can be found on the Gov.uk website Advisory Fuel Rates page.
Using the advisory fuel rates you can calculate what percentage of the business mileage rate applies to fuel and calculate the VAT on that element.
If in any doubt get in touch with our experts.