One of the most common areas where self-employed individuals, subcontractors and company directors either miss valuable tax deductions or make mistakes that can cause problems during an HMRC enquiry is vehicle and travelling expenses.

 

Many taxpayers are unsure which expenses can be claimed, what records should be kept, and whether they should use the Mileage Allowance Method or claim Actual Vehicle Expenses.

 

This guide explains the main rules and provides practical examples to help you understand which option may be more suitable for your circumstances.

 

𝗨𝗦𝗜𝗡𝗚 𝗬𝗢𝗨𝗥 𝗣𝗘𝗥𝗦𝗢𝗡𝗔𝗟 𝗩𝗘𝗛𝗜𝗖𝗟𝗘 𝗙𝗢𝗥 𝗕𝗨𝗦𝗜𝗡𝗘𝗦𝗦

If you use your personal vehicle for business purposes, HMRC generally allows two different methods for claiming tax relief:

• Approved Mileage Allowance Method (Mileage Rate)

• Actual Vehicle Expenses Method

 

In most cases you must choose one method for each vehicle and continue using that method for that vehicle going forward.

 

𝗔𝗣𝗣𝗥𝗢𝗩𝗘𝗗 𝗠𝗜𝗟𝗘𝗔𝗚𝗘 𝗔𝗟𝗟𝗢𝗪𝗔𝗡𝗖𝗘 𝗠𝗘𝗧𝗛𝗢𝗗

Under this method, instead of claiming the actual running costs of the vehicle, you claim a fixed amount for each business mile travelled.

For the 2026–2027 tax year, HMRC's approved mileage rates are:

Cars and Vans:

• 55p per mile for the first 10,000 business miles

• 25p per mile thereafter

Motorcycles:

• 24p per mile

Bicycles:

• 20p per mile

Passenger Payments:

• 5p per mile per eligible passenger travelling for business purposes

The Government announced the increase from 45p to 55p per mile on 21 May 2026 and confirmed that the new rate applies retrospectively from 6 April 2026.

 

𝗪𝗛𝗔𝗧 𝗜𝗦 𝗜𝗡𝗖𝗟𝗨𝗗𝗘𝗗 𝗜𝗡 𝗧𝗛𝗘 𝗠𝗜𝗟𝗘𝗔𝗚𝗘 𝗥𝗔𝗧𝗘?

The mileage rate is designed to cover most vehicle running costs, including:

• Fuel

• Insurance

• Servicing

• Repairs and maintenance

• Tyres

• Road Tax (Vehicle Excise Duty)

• MOT

• Breakdown cover

• Depreciation of the vehicle

• General running costs

 

This means that if you use the Mileage Allowance Method, these costs cannot normally be claimed separately.

 

𝗪𝗛𝗔𝗧 𝗖𝗔𝗡 𝗦𝗧𝗜𝗟𝗟 𝗕𝗘 𝗖𝗟𝗔𝗜𝗠𝗘𝗗 𝗦𝗘𝗣𝗔𝗥𝗔𝗧𝗘𝗟𝗬?

Certain business travel costs remain deductible separately even when using the Mileage Allowance Method:

• Parking fees incurred during business journeys

• Toll roads

• Bridges and tunnel charges

• Congestion Charge

• ULEZ and LEZ charges

• Ferry charges directly related to business travel

 

𝗪𝗛𝗔𝗧 𝗖𝗔𝗡𝗡𝗢𝗧 𝗕𝗘 𝗖𝗟𝗔𝗜𝗠𝗘𝗗?

HMRC does not allow tax relief for penalties or fines, including:

• Parking fines

• Speeding fines

• Bus lane penalties

• Congestion Charge penalties

• Fixed penalty notices

• Any other fines imposed by public authorities

 

Even where the journey itself was for business purposes, penalties remain non-deductible.

 

𝗞𝗘𝗘𝗣𝗜𝗡𝗚 𝗔 𝗠𝗜𝗟𝗘𝗔𝗚𝗘 𝗟𝗢𝗚

If you choose the Mileage Allowance Method, it is extremely important to keep accurate mileage records.

To help with this, I have attached an updated Mileage Log template which can be used throughout the year.

 

For each business journey, I recommend recording:

• Date

• Business purpose of the journey

• Departure postcode

• Destination postcode

• Odometer start reading

• Odometer end reading

• Total business miles travelled

 

Examples of acceptable business purposes:

• Client meeting

• Site visit

• Supplier visit

• Material collection

• Business networking event

• Accountant meeting

• Bank appointment

• Property inspection

 

The more detailed the records, the easier it will be to justify claims if HMRC ever asks for supporting evidence.

 

𝗔𝗖𝗧𝗨𝗔𝗟 𝗩𝗘𝗛𝗜𝗖𝗟𝗘 𝗘𝗫𝗣𝗘𝗡𝗦𝗘𝗦 𝗠𝗘𝗧𝗛𝗢𝗗

Instead of claiming a fixed mileage rate, you may choose to claim a business proportion of your actual vehicle expenses.

Examples include:

• Fuel

• Insurance

• Repairs

• Servicing

• MOT

• Road Tax

• Leasing costs (where applicable)

• Finance interest (where applicable)

• Breakdown cover

• Parking

• Other vehicle-related expenses

 

If using this method, you must keep receipts and records and calculate the percentage of business use.

Example:

Annual vehicle costs: £8,000

Business use: 75%

Allowable deduction:

£8,000 × 75% = £6,000 deductible expense

 

𝗪𝗛𝗜𝗖𝗛 𝗠𝗘𝗧𝗛𝗢𝗗 𝗜𝗦 𝗕𝗘𝗧𝗧𝗘𝗥?

There is no single answer.

The most beneficial method depends on:

• Number of business miles travelled

• Vehicle value

• Fuel costs

• Insurance costs

• Repair costs

• Leasing costs

• Percentage of business use

 

As a general rule:

Mileage Allowance tends to be more beneficial when:

• Business mileage is high

• Vehicle running costs are relatively low

• Administration simplicity is preferred

 

Actual Expenses tend to be more beneficial when:

• Business mileage is relatively low

• Vehicle costs are high

• Business use percentage is high

 

PRACTICAL EXAMPLES

Example 1 – Electric Vehicle

A contractor drives an economical electric vehicle and travels approximately 15,000 business miles per year.

Using Mileage Allowance:

10,000 miles × 55p = £5,500

5,000 miles × 25p = £1,250

Total deduction = £6,750

 

Because running costs are relatively low, the Mileage Allowance Method may produce a significantly higher deduction than claiming actual expenses.

 

Example 2 – Premium Vehicle

A director drives a Range Rover under a lease agreement.

Annual mileage: 6,000 business miles

Business use: 90%

Annual vehicle costs:

• Lease payments

• Insurance

• Fuel

• Maintenance

Total vehicle costs:£12,000

Allowable business percentage:

£12,000 × 90% = £10,800

In this situation the Actual Expenses Method may provide substantially greater tax relief than Mileage Allowance.

These examples are illustrative only. Every situation should be reviewed individually.

 

 

𝗢𝗧𝗛𝗘𝗥 𝗧𝗥𝗔𝗩𝗘𝗟𝗟𝗜𝗡𝗚 𝗘𝗫𝗣𝗘𝗡𝗦𝗘𝗦

Business travel is not limited to using a car.

Depending on the circumstances, other deductible travelling expenses may include:

• Train tickets

• London Underground

• Buses and coaches

• Taxis and minicabs

• Uber, Bolt and similar services

• Flights for business purposes

• Hotel accommodation for qualifying business trips

• Business-related subsistence expenses where permitted

• Parking charges

• Congestion Charge

• ULEZ charges

• Toll charges

 

Supporting receipts should always be retained.

 

𝗜𝗠𝗣𝗢𝗥𝗧𝗔𝗡𝗧 𝗛𝗠𝗥𝗖 𝗥𝗨𝗟𝗘

Ordinary commuting between your home and your permanent workplace is generally NOT considered business travel and is normally not deductible.

Examples:

❌ Home → Permanent Office

❌ Home → Permanent Workplace

❌ Home → Regular Place of Employment

However, travel to temporary workplaces, client sites, meetings, suppliers or business events may qualify.

 

𝗡𝗘𝗘𝗗 𝗛𝗘𝗟𝗣 𝗖𝗛𝗢𝗢𝗦𝗜𝗡𝗚 𝗧𝗛𝗘 𝗕𝗘𝗦𝗧 𝗠𝗘𝗧𝗛𝗢𝗗?

Many taxpayers automatically choose one method without checking whether it is actually the most tax-efficient option.

If you use a vehicle for business purposes and would like us to review your circumstances and determine which method is likely

to provide the greatest tax relief, please get in touch.

A simple review could potentially save hundreds or even thousands of pounds in tax over time.

The attached Mileage Log template can be used immediately to begin recording business journeys and maintaining HMRC-compliant records.

 

Thank you!

 

DANIEL CIOBANU FCPA

Certified Public Accountant

📞 07587 532646

📧 contact@dctaxagent.co.uk

🌐 www.dctaxagent.co.uk