Guide To Car Expenses For Self-Employed

Car expenses have often been claimed back using a percentage of business/personal mileage basis. This includes all running costs, even interest on a car loan, not just petrol and maintenance.

The example below gives an example of how applying this percentage method can calculate the tax expense deduction.

If your annual mileage is 40,000, and your total motoring expenses amount to £9,500, using 50% as business mileage and 50% private mileage, the total that can be claimed for tax is £4,750.

An alternative way of calculating your tax expense deduction figure is to use the authorised tax-free mileage rates. These are applicable to employees – for the first 10,000 miles it is 40p after that it is 25p. Also, you include the business portion of interest on a car loan.

Therefore on 40,000 miles, using a 50% basis, equalling 20,000 miles, the tax expense deduction would be:

Therefore using this method, the tax expense deduction claim has increased by £2250, and for a higher rate taxpayer, this results in a sax saving of £900.

It is easy to calculate, simply insert the results in your tax return.

This alternative method is only, however, available to taxpayers whose turnover is below the VAT threshold when the vehicle was acquired. So it is only possible to use this method, if applicable, when you change your vehicle.

It can be easier to calculate using the alternative method, as you don’t have to make a note of every mile you travel. However you should still note down every business trip, mileage, reason, dates, destination and form a business travel log.