Vehicle Expenses for Sole Traders: Mileage vs Actual Costs

The Two Methods for Claiming Vehicle Expenses

As a sole trader, you have two ways to claim tax relief on business use of your vehicle. You can use HMRC's simplified mileage rates, or you can calculate and claim the actual costs of running your vehicle. Each method has advantages, and choosing the right one could save you hundreds — or even thousands — of pounds per year.

This guide explains both methods in detail, with worked examples for the 2025/26 and 2026/27 tax years, so you can make an informed decision.

Method 1: Simplified Mileage Expenses

The simplified expenses method, sometimes called the mileage allowance, lets you claim a flat rate per business mile driven. The rates set by HMRC are:

• Cars and vans: 45p per mile for the first 10,000 business miles, then 25p per mile for any additional miles
• Motorcycles: 24p per mile
• Bicycles: 20p per mile

These rates are designed to cover all running costs: fuel, insurance, road tax, MOT, servicing, repairs, and depreciation. You claim a single amount and don't need to track individual costs.

Advantages of Mileage Rates

Simplicity. You only need to keep a mileage log — no need to file away every fuel receipt, insurance renewal, or garage bill.

Predictability. You know exactly how much you can claim per mile, making tax planning straightforward.

Often better for low-mileage drivers. If you do fewer business miles, the 45p rate often gives you a higher claim than actual costs, especially if you drive a fuel-efficient car.

Example: Mileage Method

Sarah is a freelance graphic designer who drives 8,000 business miles per year in her car.

• 8,000 miles x 45p = £3,600 tax deduction

If Sarah drove 15,000 business miles:

• 10,000 miles x 45p = £4,500
• 5,000 miles x 25p = £1,250
• Total: £5,750 tax deduction

What Counts as a Business Mile?

Business miles include journeys to client sites, meetings, suppliers, the bank, the post office for business parcels, and any other journey made wholly for business purposes.

Commuting does not count. If you have a regular place of work (such as an office you rent), travel between your home and that office is commuting, not business travel.

However, if you work from home and travel to a client's premises, that is a business journey because your home is your principal place of business.

Keeping a Mileage Log

You need to record each business journey with:

• The date
• The start and end point
• The purpose of the journey
• The miles driven

This might sound tedious, but with Accounted's WhatsApp mileage logging, you can simply message Penny with your trip details and she'll record everything automatically.

Passengers

If you carry a fellow employee or business partner on a business journey, you can claim an additional 5p per mile per passenger. This is a small but often overlooked bonus.

Method 2: Actual Costs

With the actual costs method, you claim the real costs of running your vehicle, but only the business proportion.

Costs You Can Claim

• Fuel
• Insurance
• Road tax (Vehicle Excise Duty)
• MOT
• Servicing and repairs
• Breakdown cover
• Parking (for business journeys)
• Congestion charges (for business journeys)
• Lease or hire payments (with restrictions for higher-emission vehicles)
• Interest on a vehicle loan (the interest portion only)

Calculating the Business Proportion

You need to work out what percentage of your total mileage is for business. If you drive 12,000 miles in a year and 8,000 of those are business miles, your business proportion is 66.7%.

You then apply that percentage to your total running costs.

Capital Allowances on the Vehicle

If you own the vehicle (rather than leasing it), you can also claim capital allowances on the purchase price:

• CO2 emissions 0g/km (electric vehicles): 100% first-year allowance — claim the full cost in year one
• CO2 emissions up to 50g/km: 18% writing down allowance per year (main pool)
• CO2 emissions over 50g/km: 6% writing down allowance per year (special rate pool)

This means electric vehicles get the most generous tax treatment, while higher-emission vehicles are written down very slowly.

Example: Actual Costs Method

James is a plumber who drives 20,000 miles per year, of which 16,000 are business miles (80% business use). His vehicle costs for the year are:

| Cost | Amount | |------|--------| | Fuel | £3,200 | | Insurance | £800 | | Road tax | £180 | | MOT and servicing | £450 | | Repairs | £600 | | Breakdown cover | £120 | | Total running costs | £5,350 |

Business proportion: 80% x £5,350 = £4,280

Plus capital allowances on a vehicle purchased for £25,000 with emissions of 120g/km:

• Year 1: 6% x £25,000 = £1,500, business proportion (80%) = £1,200

Total claim in year 1: £4,280 + £1,200 = £5,480

Compare this with the mileage method:

• 10,000 x 45p = £4,500
• 6,000 x 25p = £1,500
• Total: £6,000

In James's case, the mileage method actually gives a higher claim in year one. But over several years, as the vehicle depreciates, the capital allowance continues whilst the mileage rate stays the same.

Which Method Should You Choose?

Here's a general guide:

Choose mileage rates if:

• You drive fewer than 10,000 business miles per year
• You drive a fuel-efficient or older (fully depreciated) car
• You want minimal record-keeping
• You use a personal vehicle that's already paid for

Choose actual costs if:

• You drive significantly more than 10,000 business miles per year
• You drive an expensive vehicle with high running costs
• You've recently purchased a vehicle (capital allowances are valuable in early years)
• You drive an electric vehicle (100% first-year allowance is very generous)
• You're happy to keep detailed records

The Lock-In Rule

Once you've used the mileage method for a vehicle, you must continue using it for that vehicle for as long as you use it in your business. You cannot switch to actual costs partway through.

However, if you replace the vehicle, you can choose a different method for the new vehicle. And if you have multiple vehicles, you can use different methods for each one.

If you've been using actual costs and claiming capital allowances, switching to mileage is not an option for that vehicle whilst it remains in the capital allowances pool.

Vans vs Cars: Why It Matters

HMRC treats vans and cars differently for capital allowances:

• Vans qualify for the Annual Investment Allowance (AIA), meaning you can claim 100% of the cost in year one, up to £1,000,000
• Cars do not qualify for AIA (except electric cars, which get the 100% first-year allowance)

If you need a vehicle for your trade, a van can be significantly more tax-efficient than a car. But it must genuinely be a van — HMRC has specific definitions, and some vehicles that look like vans are classified as cars for tax purposes.

Double-cab pickups with a payload of one tonne or more are generally treated as vans. Below that threshold, they're treated as cars.

Electric and Hybrid Vehicles

The tax treatment of electric vehicles is currently very favourable:

• 100% first-year allowance on the purchase price (actual costs method)
• 45p per mile still applies if you use the mileage method (same as petrol/diesel)
• No vehicle excise duty (until April 2025, when it starts applying to EVs)
• Lower benefit-in-kind rates if you use a company vehicle (more relevant for limited companies)

If you're buying a new vehicle for business use, the tax incentives for going electric are substantial. A sole trader buying a £40,000 electric van could claim the full £40,000 as a capital allowance in year one.

Record-Keeping Tips

Whichever method you choose, good records are essential.

For mileage rates:

• Keep a mileage log (digital is fine)
• Record the date, destination, purpose, and miles for each journey
• You don't need fuel receipts for the mileage method

For actual costs:

• Keep all receipts for fuel, insurance, servicing, repairs, and any other vehicle cost
• Record total annual mileage and business mileage separately
• Keep purchase documentation for capital allowance claims
• Retain records for at least five years after the filing deadline

How Accounted Simplifies Vehicle Expense Tracking

Whether you use mileage rates or actual costs, Accounted makes tracking effortless. Simply message Penny on WhatsApp with your trip details — "Drove to client meeting in Manchester, 120 miles return" — and she'll log the mileage, calculate the allowance, and keep a complete record for your Self Assessment return.

For actual costs, snap a photo of your fuel receipt or garage bill and send it to Penny. She'll read the receipt, categorise it correctly, and calculate the business proportion automatically.

Ready to simplify your vehicle expense claims? Start your free trial today and let Penny do the heavy lifting.