I just wondered if anyone here claims their motor expenses in proportion to their business mileage or if you all just claim the standard mileage allowance of 45 pence?
I currently claim the allowance but with no more than a cursory look at the sums, I suspect I would be better off claiming a proportion of my expenses and a capital allowance instead. Our main car has cost a fortune this year and we don't buy "cheap to run" cars, so I'm wondering about changing.
Claiming motor expenses or mileage?
I'm an accountant, so here's the info on the two different motor expense methods. The tax treatment differs for limited companies, so this is just a guide for self employment.
i) Mileage Method
You keep a log of business miles, and apply HMRC's Approved Mileage Allowance payments to the business miles
travelled, as follows:
From 2011/12
First 10,000 business miles in the tax year (6 April to 5 April) 45p per mile
Each business mile over 10,000 in the tax year, 25p per mile
This is obviously nice and simple, and simply requires a log of business mileage to be kept. However, any other costs for running the car (servicing, repairs, MOT, wear and tear etc) are not able to be claimed because these are all covered by HMRC's Approved Mileage Allowance Payment.
ii) Full-cost method
You add up everything you have spent on the car during the year (petrol, servicing, repairs, MOT) then work out the business proportion of that, depending on how much you use the car for business journeys and how much for private journeys. If you buy a new car, you can also claim "capital allowances" on the business proportion of the cost of the car. Or, if you introduce an existing car that you already own into the business, you can also claim capital allowances - how much you can claim depends on the "open market value" of the car at the date you introduce it into the business, and again there will be a restriction for any private use of the vehicle.
To use the full cost method, you will need to keep a detailed mileage log to work out the business proportion of the mileage. This means making a note of all the journeys you travel in the vehicle, including:
- The date of the journey
- Miles travelled
- Whether the journey was for business or private purposes
- If the journey was for business, what was it for.
Then you or your accountant would work out the business mileage proportion, and claim that much of each cost as a business motor expense.
Most businesses use the mileage method (i). Say you travelled 10,000 miles at 45p per mile over the year. Your accounts would show £4,500 business mileage cost (in other words, you would save tax on £4,500 of income). It would only be worth using the full cost method (ii) instead if you expected your business proportion of your motor costs to be more than £4,500 over the year.
Hope this helps!
i) Mileage Method
You keep a log of business miles, and apply HMRC's Approved Mileage Allowance payments to the business miles
travelled, as follows:
From 2011/12
First 10,000 business miles in the tax year (6 April to 5 April) 45p per mile
Each business mile over 10,000 in the tax year, 25p per mile
This is obviously nice and simple, and simply requires a log of business mileage to be kept. However, any other costs for running the car (servicing, repairs, MOT, wear and tear etc) are not able to be claimed because these are all covered by HMRC's Approved Mileage Allowance Payment.
ii) Full-cost method
You add up everything you have spent on the car during the year (petrol, servicing, repairs, MOT) then work out the business proportion of that, depending on how much you use the car for business journeys and how much for private journeys. If you buy a new car, you can also claim "capital allowances" on the business proportion of the cost of the car. Or, if you introduce an existing car that you already own into the business, you can also claim capital allowances - how much you can claim depends on the "open market value" of the car at the date you introduce it into the business, and again there will be a restriction for any private use of the vehicle.
To use the full cost method, you will need to keep a detailed mileage log to work out the business proportion of the mileage. This means making a note of all the journeys you travel in the vehicle, including:
- The date of the journey
- Miles travelled
- Whether the journey was for business or private purposes
- If the journey was for business, what was it for.
Then you or your accountant would work out the business mileage proportion, and claim that much of each cost as a business motor expense.
Most businesses use the mileage method (i). Say you travelled 10,000 miles at 45p per mile over the year. Your accounts would show £4,500 business mileage cost (in other words, you would save tax on £4,500 of income). It would only be worth using the full cost method (ii) instead if you expected your business proportion of your motor costs to be more than £4,500 over the year.
Hope this helps!
Thanks Jenny!
My business mileage is relatively low, between 2 & 3000 currently. So say I claim 3000 @ 45p that's £1350. That means I would need to have my costs at say over £1400 to make it worthwhile (or even more than that!). Last year the total mileage was 10500, so 3000 of that is approx 29%. So my costs including depreciation would need to be higher than £5000 a year say which gives me £1450 in expenses?
Am I doing the sums right? You would also need to claim Capital Allowances, so how does that work for business/personal use break down? Are there limitations as to how much it can depreciate for example?
My business mileage is relatively low, between 2 & 3000 currently. So say I claim 3000 @ 45p that's £1350. That means I would need to have my costs at say over £1400 to make it worthwhile (or even more than that!). Last year the total mileage was 10500, so 3000 of that is approx 29%. So my costs including depreciation would need to be higher than £5000 a year say which gives me £1450 in expenses?
Am I doing the sums right? You would also need to claim Capital Allowances, so how does that work for business/personal use break down? Are there limitations as to how much it can depreciate for example?
Yes, to make the "full cost method" appropriate for you, Nemo, you'd need the business proportion of your motor expenses, including the capital allowance, to be more than the mileage method, so at least £1350.
Any depreciation on the vehicle that is charged in your accounts (this is the amount that you write down the vehicle by each year) is not included in the tax calculation of motor expenses - this is because depreciation methods vary. Instead, you are able to claim a capital allowance, the calculation of which is set by HMRC.
Capital allowances vary depending on a number of factors, and of course the value of the car, but say the capital allowance is calculated as £1000 for the year in question, and the car is used 29% for business and 71% for private purposes, then you will get tax relief on £290 of the capital allowance (the business element). So it's more worthwhile using the "full cost" method on an expensive car of which a considerable proportion of the mileage is business use, because the capital allowances will be higher than on a cheap car which only has a small element of business use. Remember that the capital allowance isn't a real cost - it's just HMRC's way of taxing the benefit of the car over its lifetime, and their specific rules must be applied.
For the full cost method to be the most beneficial for you to use, your total motor expenses, including the capital allowance, would need to be greater than (£1350/29)*100 = £4,655, so yes, greater than around £5,000 as you say.
If there's not much difference in result between the two methods, it is often easier to use the mileage method because it is so simple to calculate - the full cost method requires much more record keeping and analysis.
Any depreciation on the vehicle that is charged in your accounts (this is the amount that you write down the vehicle by each year) is not included in the tax calculation of motor expenses - this is because depreciation methods vary. Instead, you are able to claim a capital allowance, the calculation of which is set by HMRC.
Capital allowances vary depending on a number of factors, and of course the value of the car, but say the capital allowance is calculated as £1000 for the year in question, and the car is used 29% for business and 71% for private purposes, then you will get tax relief on £290 of the capital allowance (the business element). So it's more worthwhile using the "full cost" method on an expensive car of which a considerable proportion of the mileage is business use, because the capital allowances will be higher than on a cheap car which only has a small element of business use. Remember that the capital allowance isn't a real cost - it's just HMRC's way of taxing the benefit of the car over its lifetime, and their specific rules must be applied.
For the full cost method to be the most beneficial for you to use, your total motor expenses, including the capital allowance, would need to be greater than (£1350/29)*100 = £4,655, so yes, greater than around £5,000 as you say.
If there's not much difference in result between the two methods, it is often easier to use the mileage method because it is so simple to calculate - the full cost method requires much more record keeping and analysis.
Thanks Jenny that's very helpful and saves me a phone call to my accountant! I thought it would be more beneficial to go the expense route but I'm not sure it is, now I've explored the figures a little. The Capital Allowance figures are a little confusing - can we claim the actual cost (proportional to business use) when it's used privately as well? Otherwise the allowance would be 8% for us which isn't much use.
Jenny
Very many thanks for taking the time to explain that lot. I'll be sticking with the mileage allowance for our usage (being on site obviously means that business related mileage is restricted to shopping, trips to the tip etc, so not huge); even if it was close, I reckon with the full cost method the cost of the paracetamol would be significant!
Very many thanks for taking the time to explain that lot. I'll be sticking with the mileage allowance for our usage (being on site obviously means that business related mileage is restricted to shopping, trips to the tip etc, so not huge); even if it was close, I reckon with the full cost method the cost of the paracetamol would be significant!
Glad to be of help!
Sorry Nemo, only just saw that you had replied to this thread and asked another question about capital allowances. As I mentioned earlier, capital allowances on cars vary depending on lots of factors (such as when the car was purchased, its value, its emissions level etc) and are set by HMRC - they are usually between 10% and 20% of the car's cost each year. But if you have private mileage, the maximum capital allowance you can claim is the business proportion of any capital allowance available. So in your case, you use the car 29% for business use, which means that whatever the capital allowance is calculated to be, only 29% of it can be shown as a business expense. It's another reason why the mileage method often works out better if you have significant private use of the vehicle. Not sure where your figure of 8% comes from, but do ask if you have any further questions!
Sorry Nemo, only just saw that you had replied to this thread and asked another question about capital allowances. As I mentioned earlier, capital allowances on cars vary depending on lots of factors (such as when the car was purchased, its value, its emissions level etc) and are set by HMRC - they are usually between 10% and 20% of the car's cost each year. But if you have private mileage, the maximum capital allowance you can claim is the business proportion of any capital allowance available. So in your case, you use the car 29% for business use, which means that whatever the capital allowance is calculated to be, only 29% of it can be shown as a business expense. It's another reason why the mileage method often works out better if you have significant private use of the vehicle. Not sure where your figure of 8% comes from, but do ask if you have any further questions!