Self-Employed Car & Van Expenses 🚗 Mileage vs Actual Costs Explained (UK Guide)

John Massey
Jul 24, 2023
3 min read

If you’re self-employed in the UK or run your own small limited company, car and van expenses can be one of your largest allowable business deductions. Understanding whether to claim HMRC mileage rates or actual vehicle costs can save — or cost — thousands in tax.

Rule of Thumb (Quick Answer)

🚚 Van drivers

It’s usually most tax-efficient for the business to own the van and claim the actual running costs (fuel, insurance, repairs, servicing).

🚗 Cars used for both business and personal journeys

The mileage method is usually the simplest and most tax-efficient option — you own the car personally and claim business mileage only.

⚠️ Once you choose a method for a vehicle, you must stick with it for the life of that vehicle.

Note: For limited companies, mileage claims are treated as a reimbursement to a director or employee. The practical choice is similar, but the tax mechanics differ slightly from sole traders.

HMRC's 2 min. video summaries the rules for claiming motoring expenses quite nicely:

Mileage vs Actual Costs — What’s the Difference?

Mileage Method (Most common for cars)

HMRC allows a fixed mileage rate instead of claiming individual motoring costs.

Using this method, the vehicle remains personally owned and the business or company simply reimburses business mileage.

You'll need to keep a mileage log to claim 45p (on the first 10,000 miles) or 25p per mile for your business journeys only.

Actual Cost Method (More common for vans)

In this case your business buys and owns the van and pays for all it's all running costs (fuel, insurance, repairs etc) from the business bank account.

Like all business expenses, you'll need to keep receipts or invoices as evidence of the vehicle running costs - such as: fuel, insurance, repairs, MOT etc.

In some cases you may be required to disallow a small private use % of the costs claimed.

How Much Can You Claim Using Mileage?

HMRC approved rates for business journeys:

45p per mile for the first 10,000 miles
25p per mile for any additional miles

These rates apply per tax year and per person — not per vehicle.

Your mileage log must include

To withstand an HMRC enquiry, your mileage log should record:

📅 Date of travel

📍 Start and destination (at least house number + postcode)

🎯 Business purpose (who you visited and why)🚗 Miles driven

💡 Optional: Take a screenshot of Google Maps directions and upload it to your bookkeeping app — simple and defensible.

Mileage records should be kept for 6 years plus the current tax year, like all business records.

Tools to help you record your mileage 📝

Take your pick from two perfectly good solutions:

Download our Excel template 👉
Prefer an app? Try: Driversnote

Common Mistakes to Avoid ⚠️

Switching between mileage and actual costs for the same vehicle
Claiming fuel separately when using mileage rates
Poor or incomplete mileage records
Claiming home-to-office travel as business mileage

These are frequent HMRC challenge points.

When Should You Get Advice?

If you:

Change vehicles
Start using a van instead of a car
Have mixed business and private use
Are unsure which method saves more tax

A quick review by your small business accountant in Stockport can prevent years of lost relief.

Key Takeaways 📌

🚗 Cars used personally and for business — mileage claims (45p / 25p) are usually the most tax-efficient option.

🚚 Vans used mainly for work — claiming actual running costs through the business often gives better relief.

🔒 Once you choose a method for a vehicle, you must stick with it — switching later isn’t allowed.

📝 A proper mileage log is essential — missing details can invalidate your claim.

Source info.

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