Claim a proportion for business mileage or 40p per mile?
For partnerships and the self employed there is no laid down rule for claiming motor expenses, it is up to the taxpayer to decide whether to claim for tax purposes a proportion of their motoring costs, or the Revenue authorised mileage rate. Obviously you want to claim the maximum tax relief and it pays spend some time looking at which will be most beneficial for you. The best time to do this is when you change vehicles. In both situations you will need to know your annual mileage and how many business miles you travel. You will be expected to keep these records in the same way as you would your invoices and bookkeeping system should the Revenue ever query the figures.
Mileage rate
In order to work out the tax relief on the pure mileage rate it is simply a matter of multiplying the business mileage by the 40p per mile for the first 10k miles and 25p on mileage over 10k per annum. This figure is fully allowable for tax purposes.
Business Proportion of Actual Costs
Working out the tax relief based on actual costs is a little more involved. First all of the expenses need to be identified including:
- Fuel
- Insurance
- Road Fund Licence
- Servicing and repairs and MoT
- Finance interest (if purchasing under finance)
To these you can add leasing costs, or capital allowances (a measure of the depreciation allowable for tax purposes). In line with government policy each of these are more beneficial for low emission vehicles (<160g CO2):
Lease costs are restricted by 15% if emissions are greater than 160g, but allowable in full if less than 160g.
Capital allowances are a percentage calculated on the cost of the vehicle purchased or the value brought forward from the previous year. The allowance is 20% if the emissions are less than 160g and only 10% if more than 160g (also a special 100% allowance for vehicles with emissions less than 110g). This allowance is deducted from the cost or written down value each year so the allowance reduces over time.
Once all of the costs have been identified it is simply a matter of pro rata the costs for the proportion of business mileage, which is then allowable for tax purposes. As noted above capital allowances will reduce year on year so you should estimate future years too. It is then simply a matter of seeing which option offers the most tax relief. In broad terms if running costs are low and business mileage a small proportion, then the mileage rate will probably be beneficial. You should however always seek advice to make sure all circumstances have been considered.
