Self-employed car expenses: The Ultimate Guide For Sole-Traders (2021)

When looking at the self-employed allowable expenses list, one of the main questions people have is which self-employed car expenses you can claim for.

You may wonder about things like:

  • What is classed as business mileage?
  • The best way to finance a car for self-employed people.
  • Self-employed car lease.
  • Mileage claim calculator.
  • And buying a car for business sole trader.

This quick article will tell you everything you need to know about self-employed car expenses for sole-traders, from MOT, insurance, petrol, maintenance, and repair costs.

We’ll focus specifically on cars for sole-traders in this article since the rules for commercial vehicles, vans, and employees of limited companies are different.

Let’s get started.

What is classed as business mileage?

The taxman (HMRC) won’t believe you use your car 100% for business use. 

Why? Because on your way to visit a client, you might stop off and get a sandwich. You might swing by the shops to get some garlic bread to go with the pasta you cooked for dinner. If it’s a nice day, you might stop off by the park to go for a walk. 

You get the idea.

So how do you work out how much you can claim for self-employed car expenses? There are two ways:

The Hard Way: Add Everything Up

If you choose this way, you’ll need to add up the total costs of running your car. Yes, this can take longer, but it could also save you money on tax. The running costs of your car include:

  • MOTs
  • Services
  • Fuel
  • Insurance
  • Maintenance & Repairs
  • Any hire costs (if you’re hiring the vehicle)
  • Capital allowances on the first cost of the car

The Easy Way: HMRC Simplified Expenses

If you choose this way, you’ll simply add up how many business miles you’ve travelled and then apply the flat rate per mile rate to it:

Figure 1 – HMRC Flat Rate Car Expenses from https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles-

You can’t use this simplified expense calculation when you’ve already claimed capital allowances for your vehicle. You also can’t use this method of claiming if your car is designed for commercial use (like a taxi or driving instructor car).

Once you decide to use this way of claiming, you cannot change your mind and go back to the “add everything up” way until you change your car.

How do I work out the personal and business mileage of my car?

Now you’ve decided how you’re going to claim, you need to work out the business to personal % use of your car. So how do you do it? A mileage log.

Now a word of warning, if you’ve not heard of this before you’re going to think it’s an absolute pain. And, it is. But it’s one of those things that you’ll need to get into the habit of doing because if the taxman requests the information, you need it.

Keeping the taxman happy is important, remember.

How do I keep a mileage log?

Each journey, you need to note the:

  • Date
  • Miles travelled
  • And purpose of the trip

How you do that is up to you. You may wish to print out a quick table and fill it in by hand:

DatePersonal / BusinessStart MilesFinish MilesMiles travelled

Most people use a mileage app or accounting software. Not sure where to start? We offer training on managing your accounts. 

What is a mileage claim calculator?

Now you’ve got your total miles travelled, you need to work out how much to claim. Here’s an example of how you’d do that using each possible claim method. Simply replace our figures with your own.

Add-Up Method:

10,000 miles per annum.

Split into 3000 personal & 7000 business.

= 30% personal and 70% business use.

Total costs of running the vehicle per year: £4500

70% of £ = £3150.

Simplified Expenses Method:

7000 business miles per annum.

7000 x 45p = £3150.

Additional Car-Related Costs

Parking

If you’re heading into town to meet a client, keep your parking fee receipt! 60% of sole-traders don’t keep receipts worth under £10, but remember they all add up.

Toll Fees

Going through the Tyne Tunnel or another toll road? Keep the receipt! You can claim 100% of the cost if the trip was business-related.

So Which Method Is For You?

The simplified method is much easier, yes, but could cost you more. If you’ve got a car that’s expensive to run, you’re going to be losing out on money.

The best way to know what to do is to speak to your accountant.

Don’t have one? We are an affordable alternative to an accountant, with bookkeeping packages starting from as little as £25 + VAT per hour.

The information in this article is a great guide to use as a starting point, but there’s no substitute for tailored advice specific to your business and circumstances.

Contact us now to see how much tax and time we could save you, or download our Pay Less Tax Guide now.

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