How to claim mileage allowance when you’re self-employed.
Article written by GoSimpleTax
Whether to pick up supplies, drop off deliveries, see customers or make site visits to quote for jobs, each year many self-employed people (AKA sole traders) rack up thousands of miles on UK roads while running their business.
You may be self-employed and use your own vehicle to drive far fewer miles for business reasons, but even so, you should still claim your mileage allowance. After all, as well as fuel costs, business journeys help to cause wear and tear that can lead to expensive maintenance and repair bills. And, crucially, the more allowances and expenses you claim, the higher your self-employed earnings.
What is mileage allowance?
If used for business, you may be able to claim a proportion of the actual total cost of buying and running your vehicle, including such things as insurance, repairs, servicing, fuel, etc. This option may or may not enable you to claim more. However, keeping track of every cost and working out the exact proportion of business use for your vehicle takes time and effort.
Instead, many self-employed people claim mileage allowance, a flat-rate scheme that provides a much simpler way to claim back the cost of using your own vehicle for business. Mileage allowance is part of a range of “simplified expenses” options that HMRC offers to self-employed people. They’re designed to make tax admin easier and quicker.
How much mileage allowance can you claim?
If you’re self-employed, you can claim a mileage allowance of:
- 45p per business mile travelled in a car or van for the first 10,000 miles and
- 25p per business mile thereafter
- 24p a mile if you use your motorbike for business journeys.
If you use more than one of your vehicles for business, you don’t have to use the flat-rate mileage allowance option in all cases, you could claim the actual cost for some, and mileage allowance for others. However, once you start using the flat rate mileage allowance option for a vehicle you use for business, you cannot change.
If you travel with someone else who also works for your business, as the driver, you can claim an additional 5p per mile for each extra passenger. So, if three of you travel together, you can claim 45p + 10p per mile (two x 5p per mile for the two additional passengers) for the first 10,000 miles, then 25p + 10p per mile thereafter.
Need to know! Claiming mileage allowance doesn’t stop you claiming for other business travel expenses, such as train tickets and taxi rides. Parking tickets and toll fees while on business can also be claimed as a legitimate business expense.
When can’t mileage allowance be claimed?
You can’t claim mileage allowance for personal journeys, they must be made “wholly and exclusively for business purposes”. And neither can you claim mileage allowance for journeys to and from your usual place of work (ie your commercial business premises). You can claim for travel to a temporary workplace, for example, if you’re a plasterer who needs to travel to different sites and jobs.
Simplified expense claims can’t be used for cars designed for commercial use, such black taxicabs or dual-control driving instructors’ cars. Limited companies cannot use simplified expenses either, as they’re only available to self-employed people.
Need to know! You cannot claim simplified expenses for a vehicle you’ve already claimed capital allowances for or one you’ve included as an expense when you worked out your business profits. Where necessary, seek guidance from an accountant.
Three example mileage allowance claims
- You’ve driven 1,200 business miles in your car during the year.
Calculation: 1,200 miles x 45p per mile = £540
Annual mileage allowance = £540
- You’ve driven 10,000 business miles in your van during the year. Calculation: 10,000 miles x 45p per mile = £4,500
Annual mileage allowance = £4,500
- You’ve driven 12,000 business miles in your car during the year. Calculation: 10,000 miles x 45p per mile = £4,500, plus, 2,000 miles x 25 per mile = £500
Annual mileage allowance = £5,000
Working out your business mileage
Logging your business mileage is a good idea, as it can make it far easier to later work out and claim your mileage allowance. And your claim is more likely to be accurate and credible if HMRC can see precise details of dates, miles travelled, journeys and reasons. HMRC can request proof during an investigation.
It can be wise to get into the habit of recording details after every journey for which you plan to claim mileage allowance. Manually recording your business mileage takes more time and effort, while scraps of paper and notebooks can go missing, so it’s better to record and store your mileage details in a spreadsheet/software, with data stored safely online. Many apps have been created to help business owners track and record their business travel mileage (some even use GPS to automatically measure business mileage).
Some self-employed business owners simply estimate their business mileage, by claiming for a percentage of their vehicle’s total annual mileage. So, if your car does 1,000 miles a month and you can show that half of that is for business use, you can claim mileage allowance of 6,000 miles a year (ie £2,700).
How to claim mileage allowance
Good accounting software will do all of the hard work for you, saving you lots of time and hassle. You enter your business mileage and it calculates your mileage allowance, which you enter into your Self-Assessment tax return. The amount is taken into account and your tax liability is reduced as a result.
If you use simplified expenses to claim mileage allowance, you cannot claim for motoring costs such as insurance, road tax or fuel, because these are accounted for within the mileage allowance.
Need to know! Deliberately inflating your mileage allowance claim can lead to penalties. HMRC takes a very dim view of anyone who deliberately enters false information into tax returns.
For more information
- Visit government website Gov.uk to read Travel – mileage and fuel rates and allowances. There is also an online tool that enables you to Check if simplified expenses could save your business money.
About GoSimpleTax
Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on an accountant. Available on desktop or mobile application.
Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.
Winning in business – celebrating your success!
We love your good news so when we heard that Isobel Chaplin who set up her business 18 months ago had won her first award on top of having a record breaking profits year we were over the moon to share her article about her growing business and her first award.
Winning awards is a great way to understand your business, how it is percieved and get some free press to celebrate your business and stand you a part from your competitors. Don’t just put your award on your social media and hope it will bring in customers, it won’t!
Isobel works with our Founder Mandie Holgate as her coach and here Isobel shares how it feels to win that first award for her new business;
“My coach reminded me that I should be shouting from the rooftops about my SME News UK Enterprise Award. It’s not something I feel comfortable doing so Mandie Holgate sat and interviewed me because we really should celebrate our wins, shouldn’t we?
As small business owners we work so hard and I’m not sure enough of us take time to celebrate, so thanks to Mandie, here I will share my win. Let me know what you think.
Q: What made you enter the awards?The entry came as a complete surprise. I received an email from SME News to inform me that IJC Finance had been nominated as the Best Emerging SME Accountancy Practice for Essex AND for a Distinction Award for Customer Service Excellence, and I was shocked to be honest. In a good way, of course! I had seen the awards advertised but hadn’t dreamt of entering because of the business being quite young and I wasn’t sure we’d been seen to have enough experience. I think it’s great they have awards for all types of businesses, no matter whether in their infancy or if well established.
Q: How did you feel when you realised you were a finalist?I was told we’d been shortlisted but didn’t expect any more to come of it. This was a typical “Isobel” thought process at the time – I’m quite humble and didn’t think any more of it!
Q: In true Oscars or Miss World style “What does winning mean to you?”It’s given me a real boost in confidence. I think all business owners have moments where they think “can I really do this?”, no matter how long they’ve been in the game, and receiving the nomination and then the award has cemented my self-belief. It’s given me the push to enter more awards of my own volition. You have to be in it to win it so they say, and if anything it’s given me an opportunity to explore the business’ strengths and weaknesses in more depth.
Q: How do you feel this reflects on your business ambitions?My mission has always been to offer a personable and reliable service to small businesses so they feel valued and not just a number (that’s almost a tagline now). Being presented with an award as the Best Emerging SME Accountancy Practice of our region is a fantastic achievement for us, given that we had only been properly up and running for 18 months when the award came through. Also triumphing with a Distinction Award for Client Service Excellence shows me that we are surpassing the standards we set for customer care, which is one of our focuses for continual improvement, and the award helps us to stand out compared to our competitors.
Q: What do you feel it does for your clients?I like to think that our clients are cheering with us about this award. We’ve received a lot of positive feedback and congratulations, and the recognition has helped showcase our standing in the local accounting community as well. Showing potential clients that we have what it takes to meet their needs, and that we were even nominated let alone won the award, is also great for advertising. I think it gives our clients the reassurance that they are in safe hands.
Q: What would you say to someone thinking of entering an award for their business? What should they consider?Do it! Since winning the award we have entered more national and local awards, not necessarily with the expectation of winning, but in just writing our entries it has provided moments when have sat and thought about all the wonderful things we do that we are proud of. That’s something that business owners’ don’t normally do; we are often very critical of ourselves, so doing an exercise on shouting about how great we are has so many positives!”
We are so excited for Isobel who is an active member of our networking events and our mastermind group. If you would like support to grow your business as an Insider and member you can also share your good news, insights, advice and ideas in our blog for free!
Isobel is such a valued member of our mastermind group the Insiders Isobel will be speaking for us at our July event. We look forward to welcoming you too.
And for more essential reading to look after your money, Isobel has some great articles for you to benefit from. Head to her site for the full story;
Getting things right from the off
So, you’re new to running your business. Or perhaps you’ve been doing it a while and you’re not happy with the way you’ve been dealing with (or perhaps, not dealing with, as the case may be) the business’ finances. I think it’s important to start off any business ventures well organised and having thought through how you’re going to keep track of everything you’re doing in a monetary sense. It sounds obvious, I know, but so many business owners are perhaps a little afraid to face the finances as it all seems a bit daunting. By making sure you have set yourself a few rules to get going, it doesn’t have to be too complicated or time consuming. Step 1 Make sure you have a separate business bank account set up for all your business transactions. For limited companies it’s a mandatory requirement, so it’s one of the first things you should do once you’ve got your business registered with Companies House. Some formation companies even tag on the bank account as part of the process. Although it’s not a deal-breaking requirement for sole traders, it’s something I’d strongly recommend. If thinking about your tax return is a daunting prospect, then having all your transactions on one place makes….
Sole Trader or Limited Company?
I often get asked by business owners whether they should trade as a sole trader or under a limited company. It’s a decision that’s sometimes simple to make, but there are pros and cons to be considered and you may find that after some thought one style suits your business better. I will explain more on the key differences below and offer some food for thought…
Guide: Payment on Account
Payments on account can be one of the most common stumbling blocks when it comes to your self-assessment tax return. Although it was introduced as an initiative to help taxpayers spread their tax payments, it can often result in annual frustration and can actually harm your cash flow if you are caught unaware.
Payment on account: What you need to know
The 31st January is the deadline everyone knows about, you must file your tax return and pay any taxes due. However, if you have a self-assessment tax bill of more than £1,000 a payment on account may also be required.
On 31st January each year you may need to make a payment to HMRC. This payment will settle any outstanding tax for the last tax year, plus an upfront payment for the next tax year.
You would also need to make a further payment on account on or before the 31st July per year.
Both payments are based on what you earned last year, instead of the current state of your finances. That’s because HMRC can’t predict how your income is going to fluctuate; it’s assumed that you’re bringing in the same, every tax year, even though that might not be the case.
So, how is the payment on account calculated?
Basically, any payment on account due is equal to 50% of the previous year’s tax bill.
Whether it is the first time your tax bill is over £1,000 in a tax year or it is your first year of trading you need to know what to expect the first time you make a payment on account.
As an example
If you began trading in 2020/21 and have a tax bill of £1,400 for that year the tax bill would need to be paid on 31st January 2022.
However, because your tax bill is over £1,000, you’d also have to make your first payment on account for the 2021/22 tax year. This is calculated as 50% of the amount due for 2020/21.
In this case that would be £700. This means that you’d owe £2,100 to HMRC on 31st January 2022.
20/21 tax bill = £1,400
21/22 upfront = £ 700 (1st payment on account)
Total = £2,100
A further £700 would be payable 31st July 2022 (2nd payment on account).
As a side note, Class 2 National Insurance contributions are not included in the calculation for payments on account, this is in fact deducted before multiplying your tax bill by 50%. But for simplicity, this hasn’t been taken into account in the calculation above.
INsiders receive a 10% discount on GoSimpleTax by signing up at www.gosimpletax.com/insiders
Can I reduce the payment on account due?
Yes, this is possible. It’s important to remember that payments on account are based on your earnings from the previous year. This means that, should your income dramatically fall, your payments on account may be reduced to reflect a lower income. You can therefore make a claim to reduce your payments on account. Be careful though: reduce them too much and you can incur an interest charge on any tax shortfall.
What if I can’t afford it?
Under normal circumstances you should contact HMRC as soon as possible. Should you miss the deadline without informing them, you’ll start to accrue interest and late payment surcharges.
By contacting HMRC they may agree a time to pay arrangement, you will still be charged interest but you could avoid any surcharges.
How to pay
HMRC, in light of MTD for Income Tax, are encouraging more people to complete their self-assessment tax return digitally online. This can be done in most cases via the HMRC website or commercial digital software. Should you file your self-assessment online you will be able to make your payment on account at the same time should you chose. If you are submitting your return via a paper return you will receive a paper bill with a Bank Giro form for you to make your payment.
With all matters relating to tax if you are unsure you should speak to someone with tax knowledge or call the HMRC. It would pay to make regular checks ahead of the deadlines on interest rates and other changes to avoid any penalties.
Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed freelancers, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way.
GoSimpleTax does all the calculations for you saving you £££’s on accountancy fees.
Available on desktop or mobile application.