If you regularly drive your car, van or motorcycle "wholly an exclusively" for business purposes, you may be able to claim some of the costs to reduce the amount of tax you pay for your business.
There are two ways of working out mileage expenses for your business. These are:
1. Simplified expenses
QuickBooks Self-Employed calculates your mileage allowance using the simplified expense method and the flat rate set by HMRC. Here are the flat rates set by HMRC for each mile travelled on business.
For example, if you drove 15,000 miles in your car for business, your allowance would be £5,750. Here's how it all adds up:
- Multiply 10,000 miles by 45p to get £4,500
- Multiply 5,000 miles by 25p to get £1,250
- Add the two sums together and your total mileage allowance is £5,750
With a nice sum like that, it pays to track and claim a mileage deduction! QuickBooks Self-Employed uses this method to calculate your annual estimated taxes, so be sure to enter your trips and track your mileage.
You can't claim vehicle insurance, repairs and servicing, or fuel costs using this method, but you can claim all other travel expenses in addition to your simplified expense amount.
Note: If you use this method, you will need to keep using this method for that car until you sell it or buy another one. Be careful not to claim expenses for nonbusiness driving or travel, fines, or personal travel between home and work.
Tip: If you used actual expenses or capital allowances for your vehicle in the past, we recommend reaching out to your accountant for help to calculate your allowable expenses.
2. Actual expenses
Also known as the actual costs, this method will require you to keep detailed records of all your motoring costs for the year. You'll need to add up everything you've spent during the year and work out the business percentage/proportion of that, which you can then claim as an allowable expense.
These records may include:
- Fuel costs
- Vehicle tax
- Repairs and servicing
Tip: Remember to take a note of the mileage reading at the start of the accounting period when using this method.
Let's say, you use your car for both business and personal purposes. You will only be able to claim for the proportion of the costs that relate to the business use.
Add and categorise vehicle expenses in QuickBooks Self-Employed
- Go to Transactions.
- Select Add transaction.
- Select Car/van expenses as the category.
Note: If you use your car for both business and personal purposes, categorise these costs as Business. Your tax pro will calculate the business/personal ratio in your tax return based on the total expense amount.
Car expenses and mileage are huge topics, and we can't cover everything here. But you can learn more from HMRC here.