Sole Traders & Partners
When it comes to claiming car costs against tax there are two choices for a Sole Trader or a Business Partner (including LLP):
- claim a business proportion of all running costs – fuel, servicing, insurance, purchase cost (via Capital Allowances)
- claim a mileage rate – HMRC let you claim against tax 45p per mile for the first 10,000 business miles a year, and 25p mile there after.
The mileage rate option is probably the easiest – a record of business miles known as a mileage log needs to be kept. This could be in a diary, worked out from your schedule, or via an app.
If you claim a proportion of actual costs then a Capital Allowance claim will be needed to account for depreciation on the car. The proportion needs to be business mileage compared to total mileage.
The rules are the same for vans and motorcycles.
What does and doesn’t count as business mileage?
- Travelling to locations where you are employed under PAYE cannot be expensed.
- Travelling to business premises where you carry out a substantive part of your Self Employed activities cannot be expensed, eg if you own a shop travelling to the shop.
- Travelling between business premises can be expensed, eg if you own a number of shops, travelling between them.
- If your work is mobile, eg a gardener working for a number of clients over the course of each week, then these journeys can be expensed.
- Miscellaneous trips, eg to the bank, or a supplier, wholesaler, can be expensed.
See our guide to Eligibility of Travel Expenses for Deduction Against Tax for more on this – the eligibility rules are blind to method of travel, and this are the same whether you are using your own car or public transport.
Benefit in Kind (“BIK”) charges for “Company Cars” don’t apply to the Self Employed (Sole Traders/Business partners – they do apply to Company Directors).
Working Through a Company
If you are working through a company, then the rules above are modified. The choices are:
- Mileage expenses as above – paid by the company to yourself
- Provision of a company car – this is not usually tax efficient due to Benefit in Kind charges
Where a company car is provided:
- The company can claim all running costs and Capital Allowances on the purchase
- The person using the car – normally in this context the company director, but it could be another employee if you run a large business – is assessed to a Benefit in Kind for Income Tax – thats to say they are taxed on a notional amount reflecting the value of having the car available for private use
- The company also pays NI on the Benefit in Kind amount
- There are anti avoidance provisions for claims that the car isn’t used privately and is only used for business – the detail of these is beyond this guide, suffice to say claims that vehicles are not used privately more often than not fail
- The quantum of the Income Tax and NI charge nearly always negates any benefit of having your company own a car. A privately owned car is normally easier in accounting and tax terms, and more tax efficient. There are some exceptions short term for low emission / electric cars.