There are two methods for calculating your business motor expense as a sole trader. There is a mileage method where you claim a set amount for each business mile or you claim for a percentage of the costs dependent on how much you use the vehicle for business.
Mileage
You can reduce your profit figure by 45p per mile for the first 10,000 miles and then 25p per mile after that (per tax year).
Example: If my business mileage for the year was 15,000 miles, I would be able to claim 10,000 x 45p + 5,000 x 25p = £5,750
Costs
You'll need to keep receipts for the following vehicle costs:
- Fuel
- MOT
- Service
- Road fund licence
- Repairs
- Insurance
- Hire purchase interest
We can claim a percentage of all the above costs depending on the business/personal split. We can also claim for a percentage of the vehicle purchase cost every year (ranging from 8% to 100%).
Example: A person uses their car for business 80% of the time and has spent £10,000 to purchase the car (which has 100g/km C02 emmissions) and £5,000 throughout the year on the car's upkeep (including fuel).
Car cost claim:
- Year 1: £10,000 x 18% = £1,800 x 80% (personal use adjustment) = £1,440
- Year 2: £10,000 - £1,800 = £8,200 x 18% = £1,476 x 80% (personal use adjustment) = £1,181
- Year 3: £8,200 - £1,476 = £6,724 x 18% = £1,210 x 80% (personal use adjustment) = £968
We can therefore claim £5,000 x 80% (personal use adjustment) = £4,000 in car upkeep costs and £1,440 for the purchase price of the car - so £4,000 + £1,440 = £5,440 in the first year.
Conclusion
It's much easier to claim for mileage and is usually the method where you can claim the most in our experience. However, if you have an expensive car and/or you change vehicles frequently it may be worth claiming on the costs basis.
We ask our clients to keep a record of both mileage and costs so that we can work out the best method to use for your specific circumstances when we come to do your tax return.