Got mileage on the mind? Chances are you qualify for the self-employed mileage allowance and need to know the steps involved for calculating your deduction. Fortunately, the process is both time-saving and easy to compute thanks to automatic mileage tracking and HMRC’s streamlined methods. There are even a few tips that can help you earn big savings and avoid a tax compliance check on your tax return.
In this guide, we’ll take you bit by bit through the task of claiming mileage from HMRC in hopes you’ll be prepared for tax season.
How do I claim mileage on my UK tax return?
If you’re self-employed or an established business owner and use your personal vehicle for business purposes, HMRC offers two methods for claiming mileage and other vehicle expenses: the simplified expenses method or actual vehicle expenses method. One method may benefit you more than the other depending on the year and the amount of vehicle costs you sustained. Because HMRC wants you to weigh out both your options before deciding on a specific method, they offer a simplified expenses checker to ensure you choose the best method for you.
Here, we’ll differentiate the two methods for claiming mileage:
Actual expenses method
As the name suggests, the actual expenses method requires you to record all the costs related to your business drives in exchange for a tax deduction.The approved vehicle expenses that self-employed individuals can deduct include:
- Fuel costs
- Maintenance, repairs and services
- Car insurance
- Parking and tolls
- Road tax
- Breakdown coverage
You may also claim other travel expenses, namely car hire charges and accommodation and meal expenditures. As recognisable, there are many eligible travel expenses for self-employed to deduct, the only caveat being that HMRC requires proof of these claims.
Simplified expenses method
This is arguably the best option if you want to save time and not fuss over every single vehicle expense throughout the tax year. Instead of documenting actual expenses, like gas receipts and maintenance, you simply focus your attention to mileage. This method involves maintaining a logbook of your business trips, including dates, odometer readings, and purpose of travel. In due season, you can take the total mileage driven for business purposes and multiply that by the standard HMRC mileage rate, which is 45p per mile for cars and vans for the first 10,000 miles and 25p for every mile over.
Sounds easy enough? It is! You can keep track of mileage manually or use an automatic mileage tracking app on your smartphone. With the latter option, you don’t have to worry about misreporting or keeping record of every business mile you drive. Thanks to a combination of GPS, WiFi, and data, your phone does the work for you!
5 steps to claiming mileage on your tax return
Certainly the self-employed mileage allowance is worth taking advantage of if you meet HMRC requirements. However, not all self-employed, business owners or independent contractors understand how pivotal it is to follow the steps of claiming mileage accurately. For a start, you can’t estimate vehicle expenses and assume HMRC won’t take notice. Follow these five steps to avoid a tax compliance check in your future:
Step #1: Choose a method
While it may seem difficult to decide on a method early on in the tax year, doing this can actually increase your chances of earning big savings on your return. In any case, you should carefully contemplate both options. If you’re looking for a simple yet powerful approach, then the mileage deduction may work in your favor. Conversely, deducting actual expenses could generate the most accurate depiction of your total incurred costs.
Important tip: Whatever method you choose, you must continue to use it for that vehicle.
Step #2: Start documenting
One of the most important details of claiming mileage from HMRC is having accurate records to back your claims. You’ll need either a logbook documenting your business trips from start to finish or sufficient receipts and invoices for any vehicle expenses. The way in which you gather documentation will differ depending on the method you choose. Keep in mind, HMRC doesn’t require you to submit these records when filing, but they are instrumental in making sure you can claim all vehicle expenses.
Step #3: Time to calculate
When tax season arrives, this is where all your planning comes to fruition. Gather your documentation and have it readily available to reference throughout the filing process. Whether you chose the simplified expenses method or decided on the actual expenses method, here are the exact calculations you’ll need to figure out your deduction.
How to calculate
Simplified expenses: multiply total business miles by HMRC mileage rates for the year.
Example: Ruby is an estate agent who drove 5,000 miles for business-related tasks. Given the HMRC rate is 45p for the first 10,000 miles, she deducted 2,250p on her tax return.
Actual expenses: multiply your total vehicle expenses by the percentage used for business.
Example: Charlie drove 13,000 total miles in the tax year, 6,000 of which were strictly driven for business purposes. (6,000/13,000 = 0.46) Because he spent 550p on vehicle-related expenses, his HMRC self-employed mileage allowance is 253p.
Step #4: Claim mileage on self-employment assessment
Compared to employees who claim mileage on a P87 Form, self-employed individuals must report mileage on the self-employment assessment. This is where you’ll document all vehicle expenses to HMRC, making certain that all claims are accurate and relative to business-related tasks.
Step #5: Keep records for five years
According to GOV.UK, self-employed, business owners and independent contractors must hold on to record for at least five years from the date of submission. HMRC has the authority to check previous tax returns and dispute claims in that time period.
Get started today!
One of the many benefits of being a self-employed person in the UK is the extensive range of tax deductions. The mileage deduction just so happens to be particularly advantageous to individuals who use their personal vehicle for business-related travel. Overall, we hope this guide enlightened your understanding of the self-employed mileage allowance and helps you file correctly the next time you want to claim mileage from HMRC.
Visit the MileIQ website to learn more about automatic mileage tracking and the different pricing available.
.webp)
