How to deal with mileage expense claims

When you’re running your contracting business, you’ll more than likely need to use your own vehicle for work travel. With this, HMRC allows you to keep a record of mileage and reimburse yourself to cover the additional running costs.

However, gaining tax relief on mileage isn’t a one-size-fits-all solution, as distance travelled and the type of registered entity you are can affect your rate.

In this article, James Foster, Senior Commercial Manager at SJD Accountancy, discusses the rules and regulations of claiming mileage expenses

The mileage rates

HMRC’s Approved Mileage Allowance Payment (AMAP) provides the rates you’re allowed to reclaim at:

Transport Type First 10,000 miles (in the tax year) Mileage over 10,000 miles (in the tax year)
Cars & Vans 45p 25p
Motorbikes 24p 24p
Bicycles 20p 20p

It’s key to realise the rate for mileage is different above and below the 10,000 mile mark. For example, if you were to travel 12,000 business miles in your own personal car within the tax year, your claim would be for £5,000 – 10,000 miles at 45p, plus 2,000 miles at 25p.

This same rate applies to sole traders, except those using a bicycle for business travel, which cannot be claimed for.

Many self-employed workers fail to realise that mileage expenses don’t just cover fuel, but cover the entire costs of running a vehicle. This includes servicing, repairs, insurance, MOTs, and the loss in value over time.

How do I get the money back?

To be successfully reimbursed, you must keep a record of all business journeys to accurately calculate your entitlement. It’s so important to maintain these records precisely, as you may need to supply evidence that supports your claim.

Luckily, the days of using a pen and paper to record mileage are long gone. There’s an abundance of trackers available online, with most websites including a mileage calculator feature. This essentially works out the claim for you and saves plenty of time.

If you’ve just started as a business, you may not have the funds to reimburse yourself, but you can still do this retrospectively once you have the cash reserves available.

What about the VAT?

VAT registered companies on the standard VAT rate can also reclaim the VAT element of fuel in mileage reclaims. HMRC’s advisory fuel rates vary based on engine size and fuel type, and are updated every quarter – check you’re claiming the correct rate for each VAT return you do.

For example, the advisory fuel rate for a 1,400cc or less petrol engine car is 12p per mile as of 1 September 2019.

Therefore, if you travelled 1,000 miles and reclaimed 45p per mile (£450), the VAT inclusive fuel element would be £120 (1,000 miles @ 12p), so the VAT you would reclaim would be £20 (£120 divided by six).

What journeys can I claim for?

Daily commutes – journeys from homes to the office – cannot be claimed as a mileage expense. Any suggestion of this being allowed by HMRC is a myth, as it’s classified as a place of work and is not tax deductible.

Although, if you are asked to travel between different offices, you can claim for the mileage on the journey, as long as one of the offices is not a normal place of work. For example, someone who usually works in Birmingham can claim for travel to a Manchester office as they don’t typically work there.

What’s more, if you are working for companies that have more than one office in London, you cannot claim for tube or train tickets for journeys between them.

If you’re a registered business, take notice of the proper rates and processes for mileage expenses to ensure your everyday work travel is as tax efficient as possible.

For more information about SJD Accountancy, simply click here.

Partner Contractor Accountants

Last updated: 18th January 2024