Simple guide to Tax relief on Motor expenses and business mileage

If you use a car both for business and privately, you can claim a proportion of the actual running costs e.g. fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT etc – usually in the ratio of your business mileage to your total mileage.

You must keep a log of business mileage as well as copies of all bills/receipts to calculate the appropriate deduction. The concept of business mileage is explored later on.

You can alternatively use a fixed rate per business mile to compute vehicle expenses instead of keeping detailed records of actual expenditure. 

This method is intended to make things simpler for small businesses. It is available if the annual turnover of a business is less than the VAT registration threshold when they first use the vehicle (GBP 82,000 in 2015/16). The amounts to use are:

• Car or van 45 pence a mile for the first 10,000 miles and 25 pence a mile thereafter
• Motorcycle 24 pence a mile
• Cycle 20 pence a mile

Taxpayers can only use the mileage rate basis if they apply it consistently from year to year. They can only change to or from an ‘actual' basis when a vehicle is replaced. The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle. So if a taxpayer uses the mileage rate basis then they cannot claim any additional amounts for these expenses.

Any deductible journeys must have been made wholly and exclusively for business purposes and a log of business mileage should be kept. Whatever your business and however you work out your motoring expenses, you must keep adequate records to back up your tax return. Please note that costs of motoring for mixed private and business purpose is non-allowable expenditure. An example would be the cost of travelling to town to bank the business takings and do your private shopping at the same time.

What constitutes business miles? 

Where a taxpayer owns or rents separate business premises away from their residence then the general treatment is as follows: The cost of travel between the taxpayer's home and the work base is not allowable (this is ordinary commuting) The cost of travel between the work base and other places where work is carried out, is an allowable expense. 

There are some types of business where the taxpayer has no separate business premises away from home. For example an insurance salesman who has no office away from his residence, but who visits clients. 

Provided their base of operations is at their home, the costs of travelling between the residence and the sites at which they work may be allowed. This is because they travel from their home to a number of different locations for a purely temporary purpose at each such place – to complete a job of work. At the conclusion of which, they will attend at a different location.

In such cases, taxpayers would normally visit a large number of different premises to carry on business.

The position is rather different where a trader works at one or two different sites only during the year – for example a construction subcontractor working on the Olympic stadium. This is the normal pattern of his business, so the one or two sites will be the normal working place for the subcontractor. As such, the cost of travelling between the subcontractor's home and such business ‘bases’ should be disallowed because it is just ordinary commuting.

Where the subcontractor travels regularly at their own expense to a work base to receive instructions from a ‘principal’ and then is conveyed (at the principal’s expense) to another location/s, the subcontractor will have no allowable travel costs.