When you are self-employed, as the director of your own limited company or a sole trader, claiming business mileage is essential! As an allowable business expense, claiming business mileage means you can reduce the amount of tax you need to pay.
Recording your business mileage and understanding the records you need to keep can be challenging for new business owners, but it doesn’t have to be!
If you’re looking to claim business mileage as a limited company, or as a sole trader, let’s discuss what business mileage is, what the current UK mileage rates are, how to make a mileage claim, and how Crunch can help you make claiming business mileage as a limited company easier than ever before.
What is classed as business mileage?
Business mileage covers the miles you travel for business purposes, such as travelling to a client. You must only claim for journeys that are “wholly and exclusively” for business purposes – your daily commute or any personal trips taken in your vehicle don’t count!
Business mileage is an expense which reduces your company or sole trade profits, and therefore the amount of tax you pay at the end of the year. In short, claiming business miles is good news for you and your business.
Who can claim business mileage?
Both sole traders and limited companies can claim business mileage. If you have an employee, they would be able to claim from you as their employer. If you don’t pay them business mileage, or you pay them less than the HMRC approved mileage rates, they can make a claim to HMRC at the end of the tax year for the difference.
How much can be claimed as business mileage?
It’s usually best to claim back your mileage using the HMRC approved mileage allowance payments (AMAP rates on Gov.uk). The AMAP rates include the general running costs of your car like maintenance and insurance.
Here are the current HMRC business mileage rates for cars, vans, motorcycles, and bikes:
| Mode of transport | First 10,000 miles | Over 10,000 miles |
|---|---|---|
| Car/van | £0.45 | £0.25 |
| Motorcycles | £0.24 | £0.24 |
| Bikes* | £0.20 | £0.20 |
*Only limited companies can claim business mileage for bikes – not sole traders
HMRC do not allow business mileage to be claimed by sole traders using a bicycle, which is rather unfortunate for those green-minded among you, or even cycle couriers. However, you may be able to claim the costs of buying a bicycle for work and consumables such as tyres or maintenance. Any personal use of the bicycle is likely to reduce the amount you can claim. It’s best to speak to an accountant or your local tax office to confirm what you can claim.
It’s important to keep a record of all business journeys you make as evidence to support any claim you make.
What evidence is needed to claim business mileage?
Fortunately, it’s a pretty simple process. To ensure that you can claim back mileage as a sole trader, director, or for your employees, the following records should be kept:
- A log of the date of each journey and location
- The number of business miles covered.
My new business hasn’t got any funds to reimburse mileage expenses
It is often the way that, as a brand new business, you’ll have expenses to pay before you’ve earned any money for the company. There are two possible options here regarding business expense claims:
- Wait until the business has generated the necessary income and then claim
- Introduce your own working capital into your business and then you can pay yourself back. It sounds a bit like robbing Peter to pay Paul, but the input of capital shows in the company accounts as a loan from the director to the company or as capital introduced by the sole trader to their business.
What are HMRC Advisory Fuel Rates?
HMRC Advisory Fuel Rates are the recommended amounts when you are reclaiming the fuel element on business mileage in a company car. HMRC reviews these rates every quarter. These rates only apply to Standard Rate VAT registered companies. They’re used to calculate:
- The amount of VAT to reclaim on business mileage in a personal vehicle
- How much employers can reimburse employees for business travel in their company cars
- How much employees need to reimburse employers for private travel in their company cars.
From 1st September 2021, the Advisory Fuel rates are:
| Engine size | Petrol | Diesel | LPG | Electric* |
|---|---|---|---|---|
| 1,400cc or less | 12p | 7p | 4p | |
| 1,600cc or less | 10p | 4p | ||
| 1,401cc – 2,000cc | 14p | 8p | 4p | |
| 1,601cc to 2,000.cc | 12p | 4p | ||
| Over 2,000cc. | 20p | 15p | 12p | 4p |
* Fully electric cars only. Hybrid cars claim at the petrol or diesel rate. Electricity is not classed as a fuel for car fuel benefit purposes.
You can find previous rates at the Gov.uk website Advisory Fuel Rates page.
Using the advisory fuel rates above, you can calculate what percentage of the business mileage rate applies to fuel and calculate the VAT on that element.
