Self-employed mileage allowance: all you need to know
Just like employees, self-employed workers often need to travel for business reasons. This might include a variety of reasons, such as prospecting for and meeting new clients, transporting goods to distributors, purchasing supplies, meeting with suppliers, or attending meetings, training sessions and conferences.
Self-employed workers and simplified expenses
As is the case with other workers, this travel comes at a cost. These costs include buying or renting a vehicle, insurance, repairs for wear and tear, fuel, parking, licencing fees, breakdown insurance and public transport tickets, as well as accommodation and food while on a business-related trip. In the case of a self-employed worker, however, there is no employer to help shoulder these expenses, keep track of every mile driven and claim the appropriate tax relief.
Different rules and HMRC mileage allowances apply to leased vehicles, electric cars, bicycles and, of course, self-employed workers. Let’s take a look at the different rules that apply to self-employed workers and some of the benefits of claiming a mileage allowance.
The HMRC mileage allowance for self-employed workers is designed to simplify the way in which self-employed workers can claim the mileage they accrue for business purposes. It is different from the approved mileage allowance payments for employed workers. It sets a fixed rate per mile which can legitimately be claimed back as an allowable business expense on a self-employed person’s tax return.
The aim of the simplified expenses for self-employed workers is to make it easier for them to claim for the costs of running their vehicle. It is a flat-rate scheme which applies to self-employed workers (also known as ‘sole traders’ in the UK). It saves such workers from having to keep track of the proportion of time that they use their vehicle for business and personal purposes and the proportionate expenses that they incur.
The expenses of running the vehicle are calculated on a flat-rate basis as opposed to the actual costs of running the vehicle.
HMRC simplified mileage expenses for self-employed workers
The current mileage allowances published by HMRC for self-employed workers are as follows:
|Car or goods vehicle (up to 10,000 miles)||45p|
|Car or goods vehicle (over 10,000 miles)||25p|
|Fully electric vehicles||4p|
Let’s look at an example of how to calculate the flat rate for a self-employed plasterer who travels 13,000 miles per year in their van for their business. This worker can claim 45p for the first 10,000 miles they travel (£4,500) and then 25p for the remaining 3,000 miles (£750). This comes to a total of £5,250.
You should also bear in mind that you can also claim the VAT on the fuel element of the mileage allowance. To do so, you need to check the advisory fuel rates issued by HMRC on a quarterly basis. Depending on the type of vehicle you are driving, this may range from 5p per mile for a fully-electric car to 25p per mile for petrol cars.
Self-employed workers and passengers
If a self-employed worker travels with a passenger who also works for the business and is also travelling for business reasons, the self-employed worker can claim an additional 5p per mile for transporting the passenger. To refer back to the example above, if the plasterer travels with their apprentice on all their business journeys, they can claim £5,900 (45p + 5p x 10,000 miles plus 25p + 5p x 3,000 miles).
This additional 5p can be added for each additional passenger travelling on business.
Should all self-employed workers claim mileage allowance?
Some self-employed workers might travel very little and may think it is not worth calculating either the actual cost or the mileage allowance for the limited number of miles they drive each year. However, even short distances can quickly add up. For this reason, it is almost always worthwhile for self-employed workers to include their mileage allowance in their self-employed tax returns. By claiming even a few miles every week or month, a self-employed worker increases their expenses and lowers their overall tax liability.
Self-employed workers who travel a great deal may or may not be better off claiming under the actual costs scheme as opposed to the mileage allowance scheme. This will depend on the number of miles driven and the actual wear and tear on the vehicle and should be analysed on a case-by-case basis.
If you are self-employed and run more than one vehicle, you can mix and match. You might decide it is more worthwhile to claim for one vehicle on an actual cost basis and the other under the mileage allowance scheme. Bear in mind, however, that once you decide to use the flat-rate scheme for a specific vehicle, you cannot change your mind later.
Other travel expenses and mileage allowance
By claiming mileage allowance, a self-employed worker is choosing not to claim the actual costs of their travel (wear and tear, fuel, insurance, etc.). However, this does not mean that they cannot claim other travel expenses that they may incur, such as train fares, flights and taxis. These are claimed independently of the mileage allowance.
What journeys are not covered by the self-employed mileage allowance?
As with all the HMRC rules on business travel, the self-employed mileage allowance can only be applied to journeys which are “wholly and exclusively” for the purposes of business. In other words, combined business and personal trips are excluded, as is commuting between the home and the usual place of work. However, it can be claimed on travel to “temporary” places of work, such as building sites.
A “temporary” place of work is defined by HMRC as a workplace the worker attends for less than 40% of their working time for a limited duration (such as a meeting) or for less than 24 months.
The self-employed mileage allowance can also not be used for commercial vehicles, such as black cabs and dual-controlled vehicles used by driving instructors.
Regardless of which method you choose to use, it is essential to keep accurate records of your business travel expenses. In the event of a tax audit, you need to be able to demonstrate that the journeys you have claimed were “wholly and exclusively” for business purposes. It is, therefore, essential to keep accurate records.
Traditionally, drivers kept handwritten logs of their journeys, noting the departure and destination, mileage, dates and times of any travel as well as information on the reason for the journey. Some self-employed workers continue to use this method, collecting receipts and taking notes as they go and transferring them to a digital format such as a spreadsheet when it comes to making a claim. However, with the advent of mobile devices, many others now use specific apps to make their lives easier. Modern accounting software often integrates mileage allowances, and users can track their journeys using GPS and take photos of receipts which are then loaded into the software.
Claiming your mileage allowance
Once you have accurately tracked all your business mileage for the year, you can claim this amount in your tax return as a tax-deductible expense. If we use our example of the plasterer travelling with one passenger, the driver should enter the amount of £5,900 as an allowable expense.
For businesses earning less than £85,000 per year, this can be done in the simplified version of the tax return. For businesses earning over that amount, a full cost breakdown is required.
In all cases, you should keep full records of your mileage, even when you don’t need to submit them as part of your tax return. In the event of an investigation by HMRC, you will need to be able to justify the amount you have claimed.
Do you want to find an easier way to record, track and reimburse your self-employed business mileage? Do you want to make it easier to make mileage claims as part of your self-employed tax return? Do you want to get rid of the need to collect paper receipts and invoices from your staff? The fuel card Mooncard Mobility may be just the solution you are looking for. Get in touch for a no-strings-attached demonstration and a tailor-made quote corresponding to your business needs.