Claiming Motor Expenses When Self Employed – Which Method?
Tax Guide for claiming vehicle expenses
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If you are self-employed one of the most common expenses is your car or van. There are two ways in which you can claim this expense against your income.
The direct method or by using HMRC’s fixed rate one. Obviously it is important to know which one would be more beneficial for you. I will show you examples of both methods and depending on your circumstances you should be able to work out which one suits you. Whether it is more advantageous to claim mileage or claim a percentage of total running costs will depend on the number of miles driven and the cost of the vehicle – you have to weigh up each method and pick the one that maximises your claim.
The direct cost method
First of all you need to work out your business use of the vehicle. Keep a record of the miles you drive for business and compare it to the total miles driven to work out the business use percentage. You can only claim the business proportion of expenses.
Let’s say this was 60% for business, you then apply this fraction to your total running costs. Add up your total motor running costs for the year or period, fuel, Maintenance, Insurance, road tax, etc, and apply the 60% business use to arrive at the amount of expenses you can claim. You can also claim interest on a loan for the purpose of buying the vehicle.
You may also be able claim Capital Allowances for the cost of the the vehicle. Normally the allowance (writing down allowance) for cars will be 20% of the cost per annum on a reducing balance basis. For vans you could claim the Annual Investment Allowance which is 100% of cost subject to private use, of course.
You can also claim a 100% first year allowance on new unused cars with low CO2 emissions of not more than 110g/km.
However, cars that have CO2 emissions of more than 160g/km can only claim 10% of the cost per annum.
HMRC Fixed Rate scheme
This is much simpler. You still have to keep a record of your business miles though. The rate includes all running costs, capital allowances (depreciation) but excludes interest on a loan to buy the vehicle which can still be claimed if you use this method.
HMRC will allow you to claim 45 pence per mile for the first 10,000 miles in a year and 25 pence thereafter. For example if your business miles were say 5,000 for the year. 5,000 x 45p = £2,250 can be claimed. You can also claim 24p per mile for a motor cycle and 20p per mile for a bicycle.
Please note: You cannot change from one method to another. Whatever method you adopt you have to stay with until you change the vehicle.
Frequently Asked Questions
Can I claim the purchase of a car on my taxes in the UK?
Generally, you cannot claim the full purchase cost of a car as a business expense. Depending on your accounting method and the vehicle, you may instead be able to claim capital allowances. If you use HMRC's mileage rates, the purchase cost is already reflected within those rates.
Can you claim for buying a van when self-employed?
Yes. If you buy a van for business use, you may be entitled to claim tax relief through capital allowances or other allowable deductions, depending on your circumstances.
Can you claim for a van when self-employed?
Yes. If the van is used for business purposes, you can normally claim eligible running costs and, where applicable, capital allowances. Any private use should be excluded from your claim.
Can you claim depreciation on your car?
HMRC does not allow sole traders to claim accounting depreciation as a business expense. Instead, tax relief is generally available through capital allowances where applicable. If you claim the mileage method, depreciation is already included within the approved mileage rate.
Can you claim car tax on your tax return?
If you use the actual expenses method, you can usually claim the business proportion of your vehicle tax as part of your allowable vehicle expenses. If you use the mileage method, vehicle tax is already covered by the mileage rate.
Can you claim car tax back if you're self-employed?
Self-employed individuals cannot claim road tax separately when using HMRC's mileage rates because it is already included within the approved rate. If you claim actual vehicle expenses, the business proportion of vehicle tax may be allowable.
Can I claim the purchase of a car on my taxes in the UK?
Generally, you cannot claim the full purchase cost of a car as a business expense. Depending on your accounting method and the vehicle, you may instead be able to claim capital allowances. If you use HMRC's mileage rates, the purchase cost is already reflected within those rates.
Can you claim for buying a van when self-employed?
Yes. If you buy a van for business use, you may be entitled to claim tax relief through capital allowances or other allowable deductions, depending on your circumstances.
Can you claim for a van when self-employed?
Yes. If the van is used for business purposes, you can normally claim eligible running costs and, where applicable, capital allowances. Any private use should be excluded from your claim.
Can you claim depreciation on your car?
HMRC does not allow sole traders to claim accounting depreciation as a business expense. Instead, tax relief is generally available through capital allowances where applicable. If you claim the mileage method, depreciation is already included within the approved mileage rate.
Can you claim car tax on your tax return?
If you use the actual expenses method, you can usually claim the business proportion of your vehicle tax as part of your allowable vehicle expenses. If you use the mileage method, vehicle tax is already covered by the mileage rate.
Can you claim car tax back if you're self-employed?
Self-employed individuals cannot claim road tax separately when using HMRC's mileage rates because it is already included within the approved rate. If you claim actual vehicle expenses, the business proportion of vehicle tax may be allowable.
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