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: 45p/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 18% 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 a year. 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 45p) + (2,000 x 25p) = £4,500 + £500 = £5,000.
• Actual cost: running costs £6,050 x 85% = £5,143. 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: £23,843.

In year one, actual cost materially outperforms simplified mileage because of the Annual Investment Allowance claim on the van. In year two and beyond, running costs alone produce roughly £5,143 annually, broadly on par with mileage. For heavy-vehicle-use tradespeople who buy their vehicles, actual cost is almost always better. For lighter users with modest-value cars, simplified mileage is simpler and often comparable.

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. Commuting, The Trap That Isn't Claimable

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.

The safer position: a sole trader's home is their business base; travel from home to temporary workplaces (sites worked for less than 24 months, or under 40% of the trader's time) is allowable. Regular commutes to the same client site, particularly if fixed-term and daily, are not. This is a genuinely grey area; the IR35 logic of "inside/outside" status applies to some extent.

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.