Vehicle Expenses, Mileage vs Actual

1. The Business-Use Rule

Only the business-use proportion of vehicle costs is deductible. A sole trader using a car 60% for business and 40% for personal driving claims 60% of eligible costs. Business use means travel to client sites, supplier visits, professional meetings, trade shows, not commuting from home to a regular place of work. The boundary between these matters, and section 6 returns to it.

2. The Simplified Mileage Rate

HMRC's simplified mileage rate pays a flat amount per business mile, covering fuel, insurance, servicing, and all running costs. Rates for 2025/26:

• Cars and vans: 55p/mile for the first 10,000 business miles in the tax year, 25p/mile thereafter.
• Motorcycles: 24p/mile (no change above 10,000).
• Bicycles: 20p/mile.

The mileage rate is all-inclusive for day-to-day running costs. You cannot separately claim fuel or servicing on top. You can separately claim the business-use proportion of parking, tolls, and congestion charges that are specific to business trips.

3. The Actual-Cost Method

Under actual cost, you claim the business-use proportion of all real vehicle costs:

• Fuel.
• Insurance and road tax.
• Servicing, MOT, repairs.
• Lease payments (if the vehicle is leased rather than owned), some restrictions apply for high-emission cars.
• Finance interest (if the vehicle is financed).
• Capital allowances on the vehicle itself (if owned), typically 14% main pool or 6% special rate for cars over 50g/km CO2.

The business-use percentage is typically evidenced by a mileage log, business miles divided by total miles driven. A log kept for a representative period and extrapolated for the full year is acceptable practice.

4. Worked Example

A self-employed tradesperson does 12,000 business miles in 2026/27. Using traditional accounting, his van cost £22,000 new, he spent £3,600 on fuel, £1,200 on insurance, £800 on servicing and tyres, £450 on road tax. Business use of the van is 85%.

• Mileage method: (10,000 x 55p) + (2,000 x 25p) = £5,500 + £500 = £6,000.
• Actual cost: running costs £6,050 x 85% = £5,142.50. Plus Annual Investment Allowance on the £22,000 van (vans qualify as plant & machinery, 100% AIA) x 85% = £18,700 in year one. Year one total: £23,842.50.

In this example, actual costs give a larger deduction in the purchase year because the van qualifies for AIA. With unchanged running costs, later years give £5,142.50 against £6,000 under mileage. Compare the expected ownership period and disposal tax adjustment, rather than choosing from one year alone. Under cash-basis accounting, an eligible van purchase is normally an expense instead of an AIA claim.

5. Switching Between Methods

You choose the method when you first claim for a vehicle and must stick with it for that vehicle for as long as you own it. You cannot switch mid-ownership. A change of vehicle resets the choice. This is important: if you are considering buying a van, the year-one AIA in actual-cost method is a major advantage that mileage gives up permanently for that vehicle.

6. Which journeys can you claim?

Travel from home to a "regular place of work" is ordinary commuting and not deductible. This catches sole traders who work at a fixed client site week after week. HMRC treats that as a regular place of work.

For a sole trader, consider the nature of the business and each journey. An itinerant trader moving between jobs may qualify for travel from home, while travel to a fixed business base normally does not. The employee 24-month and 40% temporary-workplace tests are not the test for self-employed travel. Keep evidence of where and why you worked.

7. Record-Keeping

• Mileage log: date, start and end location, purpose, miles. Apps like MileIQ or the mileage tracker in Xero automate this.
• Fuel and running-cost receipts: retain all if using actual-cost method.
• Purchase invoice: critical for capital allowances / AIA.
• Lease agreement: if leased, retain for the term.
• Retention: 5 years after the 31 January Self Assessment deadline.

For a modelled comparison of mileage vs actual cost for your specific vehicle and usage pattern, see our sole trader service.