Simplified motor expenses for sole traders and partnerships

Are you a sole proprietor or member of a partnership? HMRC allow an array of business expenses to be deducted from your income to arrive at your taxable profits. The detailed list and guidance can be found by clicking on the following link (https://www.gov.uk/expenses-if-youre-self-employed).

HMRC provide a simplification of some expenses. This means that you can claim for certain expenditure using a flat rate allowance rather than apportioning the actual amount spent. An example of an expense in the ‘simplified’ category is expenditure on motor vehicles.

In general, the day-to-day jobs of a sole trader or partner include much more than just carrying out income-generating work. A proportion of time is often spent carrying out admin, finance and recruitment tasks and much more, beyond. The aim of our guides is not only to save you money but also to save your time than can be better spend on the main aspects that drive your business.

This article will look at 3 key points.

What do simplified motor expenses cover?

What is eligible?

How to make the claim?

We will provide an illustrative example to help your understanding of the topic.

What is covered?

The simplified rules allow businesses to calculate their vehicle expenses by claiming a fixed rate per business mile instead of keeping a detailed record of actual expenditure in the year.

The fixed rate mileage claim incorporates the costs of buying, running and maintaining the vehicle in addition to the depreciation, i.e. the ‘wear and tear’. It covers all of the expenditure that you might expect to incur in relation to vehicles. it offers the benefit of claiming by business mile traveled, rather than having to keep records of each individual piece of motor related expenditure over the course of the year.

It is worth noting that certain expenses that may be incurred as part of an individual journey, such as parking and congestion charges, are not incorporated in to the fixed rate due their incidental nature. However, these expenses are still allowable, if indeed they were incurred solely for business purposes, so records of these should be maintained.

What is eligible?

The mileage rate can be claimed on any journey that is carried out wholly and exclusively for business purposes. Private journeys, such as travelling from home to your permanent place of work, or those that have a dual purpose (private and business) may not be claimed.

An example of an eligible fixed rate mileage claim is the mileage relating to a business meeting away from your permanent place of work and the journey if you were to travel straight home from the meeting.

If, in a more complex example, you were required to stop at your business premises prior to travelling to the meeting, this stage of the journey would not qualify for the fixed rate mileage claim, due to it being your normal commute. Only the subsequent mileage from your business premises to the meeting would be eligible.

There are some further, more complex scenarios relating to the fixed rate mileage claim and in particular, what defines a ‘permanent workplace’. If you have any doubts over what is a qualifying journey, please contact this page, or your accountant.

How do you claim?

Any business mileage up to 10,000 miles is claimed at 45p per mile. Any miles travelled upwards of the 10,000-mile threshold is subsequently claimed at 25p per mile. A log of business mileage should be maintained to support any flat rate mileage claim made.

Once the total mileage has been calculated for the year, and the rates applied to the relevant number of miles, this should be shown under ‘motor expenses’ on your tax return, or within the same heading on your business accounts.

Illustrative example

Tim is a self-employed Vet, who often travels to patients’ houses to check on recovering pets. In this year, Tim travelled 10,500 miles relating to patient check-ups in his private vehicle. Because these journeys are all business journeys, i.e. carried out wholly and exclusively for business purposes, all mileage travelled by Tim qualifies for a fixed rate claim.

The first 10,000 miles are calculated at 45p per mile. As Tim has traveled 10,500 miles, the remaining 500 miles at 25p. This equates to a total mileage claim of £4,625 (10,000 miles x 45p + 500 miles x 25p). Tim would enter this figure in ‘motor expenses’ on his tax return and/or business accounts.

Assuming that Tim’s self-employment profits were £75,000, the top rate of tax he pays is 40%. This amount of motor expenses would reduce his profits by £4,625, saving £1,850 of income tax (£4,625 x 40%), simply put.

The actual expenses method

In addition to the simplified expenses method, the ‘actual expenses method’ can be used to work out your motor expenses. This method requires the sole trader or partnership to record all motor expenses manually for the year. Once this total amount has been calculated, a percentage is applied to the total to represent the business percentage. This percentage is often calculated as the business mileage traveled in the vehicle as a percentage of total vehicle mileage for the year.  

It is important to note that both the ‘actual expenses’ method and the ‘simplified’ motor expenses method each have their own advantages and whilst one method may be more advantageous for one party, the other may be more beneficial to another party. Therefore consideration should be given before opting for a specific method, it may be worth discussing with your accountant.

We hope this article helps your understanding of how to claim for your motor expenses as a sole trader or member within a partnership. As always, there are exceptions and complex scenarios. If you have any doubts over whether or not you can claim for certain journeys, please contact your accountant or feel free to contact this page, or myself directly (thomaslowry21@outlook.com)