PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

Using your private car for work

Self-employed - running a business and paying tax

Motor expenses for many self-employed people will be partly a business expenses and partly a private expense – that is, you will have a vehicle which you use both for private and for business travel. There is an identifiable business costs – the miles you travel on business, but how do you separate the business element of the cost? For tax purposes, there are two approaches:

1)    Add up all your motor expenses for the year and work out the business percentage – based on the proportion of business miles you do. (You may also be able to get tax relief for part of the capital cost of the vehicle by claiming ‘capital allowances’)

2)    Claim a fixed rate mileage allowance for business travel. Here the cost of buying the vehicle is included in the mileage claim

The second method can be more convenient for many small businesses, though either method is acceptable. However, you cannot use a combination of both methods, and once you have chosen a method, you will normally have to stay with it until you replace the vehicle.

Total expenses method

To use this method, keep a record of all the motor expenses – fuel, servicing, insurance, road fund licence, subscription to motoring organisations etc. You also need to keep a mileage record book showing business and private trips.

Work out the proportion of business miles to total mileage and use this to apportion the total cost.

This method can produce an accurate result and is suitable for all businesses, particularly ones where motoring costs are high.

Mileage allowance – or ‘simplified expenses’ rules

HM Revenue and Customs permits self-employed people to claim a fixed mileage allowance for all business mileage travelled as an alternative to apportioning total costs. Once this method has been chosen, the business should normally continue with it during the life of the vehicle.  Details of the method are given at

http://www.hmrc.gov.uk/manuals/bimmanual/BIM75005.htm

This method will allow most self-employed workers to claim 45p per business mile travelled in a car or van (45p for the first 10,000 miles and 25p thereafter).

Ideally you should keep a note of all business journeys, so that you can demonstrate evidence of the number of miles which you have claimed in each tax year.

In the absence of a log, it may be possible to estimate the business mileage by taking the annual mileage of the vehicle (e.g. from MOT certificates) and applying a percentage of estimated business use. So if the car does 10,000 miles per annum and you can demonstrate (perhaps over a sample period of 3 or 4 weeks) that 30% of the use is for business purposes, then you may claim 3,000 (10,000 x 30%) miles as a business expense.