Posted by James Pearson on 30 Aug 2013

Business Mileage Expenditure

Be Careful When Making Self-Employed Mileage Claims

When claiming business mileage, a self-employed trader should be aware that the definition of mileage costs and business travel are not as simple as you may think.

Method of Mileage Calculation

There are two possible methods for self-employed individuals to calculate their allowable vehicle expenses.

The traditional way was to keep a record of the total mileage travelled in a vehicle during an accounting period, and how much of that total was for business purposes. This could be used to arrive at a percentage of total travel that was for business purposes and that percentage could be applied to all costs incurred in relation to that vehicle. For example, if during an accounting period, 75% of all travel was for business purposes, the tax payer could claim 75% of fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT costs incurred during that accounting period as a business expense. This obviously requires a fair amount of receipt-keeping and calculation, but a simpler method is available in certain circumstances.

The alternative method is to simply keep a note of business mileage. A fixed rate per business mile, provided by HMRC can then be applied to the business mileage to arrive at the allowable deduction. For cars and vans the approved mileage rate is 45p per mile for the first 10,000 miles per annum and 25p per mile thereafter. If the mileage rate is being claimed, no other expenditure in relation to that vehicle mileage is allowable. It is important to consider the consequences before choosing to use the fixed rate method as once the choice has been made, it must be used for the rest of the life of that vehicle. The business mileage method obviously represents less of an administrative burden, but it may be that the precise method produces a greater expense claim.

Mileage can be recorded simply through a log of journeys, recording each journey and its length. It would also be advisable to record where each journey was between in order to show HMRC that the length of the journey is accurate. If you are using the traditional method you will have to record all journeys and distinguish between private and business journeys. Expenses that are to be apportioned under the traditional method should be backed up with receipts as with normal business expenses.

Qualifying Mileage

Regardless of the method that is chosen, it will obviously be important to identify what counts as business travel, and this is not as simple as you might think. A wide range of case law means that this is quite a complex area to consider.

The basic rule is that in order to qualify as business travel, a journey must have no personal aspect to it. However, if there is a sensible objective way in which to apportion between the business and private elements of a journey HMRC are willing to do so, only disallowing the private proportion.

HMRC treat travel between your home and your place of business or place of operations as having a private element, since the reason that you have to make that journey is that you have made a private choice where to live. This situation is complicated if you work from home but a number of tax cases have shown that even If you do work from home, travel to and from that home to a place of business is still treated as having a private element and no deduction is allowed. These cases have included a solicitor who worked from home but regularly visited his chambers, a dentist who regularly visited a laboratory to and from his way to work (and which was situated on his and did not require a significant deviation on his journey) and a milkman who travelled from home to the depot to which his milk round was adjacent.

It should be noted that these cases in which deductions were not allowed all involved a degree of permanence in that journeys were regularly made between the same places.

This can be contrasted with the case of a bricklayer who travelled from home to a series of different and ever-changing building sites. In this instance mileage from home to these different sites was allowed as an expense.

This principle has recently been reaffirmed by a case in which a doctor worked from home but had two separate but consistent places of work that he has travelled to on a regular basis. HMRC successfully argued that no deduction should be allowed for this travel, even between the two places of work that were not his home, on the basis that those journeys represented travel that was in part needed to allow him to live at home. Since this is a very recent case, its long-term affects can not yet be determined, but it is clear that if you travel between home (even if you work from home) and any place of work that has any degree of permanence or routine to it, HMRC are likely to disallow any claim for business travel in relation to that journey.

Contact Tax Innovations

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See also…

Self-Employed Mileage Deductions

Overseas Workday Relief (OWR)

UK Self Assessment Tax Return Filing and Penalties

Self Assessment Tax Returns

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