Mileage Allowance Scheme for Self Employed Couriers

A typical self-employed same day courier will put a lot of effort into keeping their vehicle running costs as low as possible; the difference between their running costs and their turnover is their profit after all. It’s quite common to leave financial matters, particularly tax-related matters, to an accountant or bookkeeper and I’m always astonished how many ‘accountants’ fail to advise their same day courier clients to consider using the Mileage Allowance Scheme rather than claiming their actual vehicle running costs against tax.

Many accountants seem completely unaware that this option is available to their clients, despite it being prominently featured in the HMRC Help Sheet HS222: How to calculate your taxable profits.

Self-employed people with a turnover under the VAT registration threshold (whether they’re registered or not) are allowed to claim HMRC Approved Mileage Rates instead of actual running costs. The rates for cars and vans are 40p/mile for the first 10,000 miles then 25p/mile. For motorcyles it’s 24p/mile and for pedal cycles it’s 20p/mile.

Since the government haven’t raised the rates since the scheme was introduced in 2002 it’s not quite as beneficial as it once was but it can still be a very tax-efficient, and simple, way of claiming your vehicle expenses under certain circumstances.

It works best for owner-drivers with rented small vans doing very high mileages. 2500 miles per week equals about £650 allowance for £85 rental, £20 insurance & £250 fuel.

If you use the scheme you can’t claim any other expenses for ANY vehicle costs except for hire-purchase interest. You can’t claim fuel or vehicle insurance but you can still claim for congestion charge, tolls, GIT etc. You can only start to use the scheme when you change your vehicle, although off-hiring and starting a new hire agreement should be allowable.

You have to keep a full, accurate log of your journeys and mileages and be able to prove that you covered all the mileage on business. Records have to be kept for 6 years after the end of the tax year and the Revenue can and do check records randomly.

The allowance is charged to your Profit & Loss account as if it was a normal expense and can do a nice job of decimating your profits for both Income Tax and Tax Credit purposes.

Posted under Courier Basics, Courier Financial Issues, Mileage Allowance Scheme

Posted by Alec at 8:42 am, July 30, 2008

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15 Comments so far

  1. Bobby Mc Donald added on  September 29th, 2008 at 09:48

    If you do not kep records but still want to claim mileage van you work out roughly the mileage by looking at the income received. If for instance I receive £2000 in income can this be roughly equated to a number of miles travelled.

  2. I’d be astonished if HMRC allowed you to ‘guess’ your mileage in that way. You’re required to keep fairly detailed records of where you’ve been and the purpose of your journey. They can be incredibly fussy over the smallest detail.

  3. Bobby Mc Donald added on  September 29th, 2008 at 10:11

    I know but my mate has been caught by HMRC. He has a full time job but has been working as a self employed courier at night and days off.HMRC has sent 3 years tax returns. He has got details of income but no expenses. Worth a chance claiming something. Even if they knock it back he is no worse off than he would be not claiming. Obviosly he has no records or receipts.

  4. If he’s been working as a subcontractor then the company he’s been working for should have records of all the work he’s done. If he could get copies of his job-sheets from the courier company then he could spend a bit of time doing proper estimates of the mileage. Detailed job-sheets or pay-sheets with each job itemised would go a long way towards supporting a claim.

  5. Bobby Mc Donald added on  September 29th, 2008 at 10:22

    Will ask him to do that. If not is there any relation between income received and mileage that he could use to estimate his income. The revenue must have some sort of model they use.

  6. Bobby Mc Donald added on  September 29th, 2008 at 10:27

    Sorry thaat should have said to estimate his mileage expenses not income. We know his income

  7. I don’t see how they could work anything out based on his income. There are too many variables that can affect the income without affecting the mileage – like the actual mileage rate, journey profile, extra drop-rates, backloads, waiting time, minimum charges.

    They may well allow him a minimum fair estimate, based on the fact that he must have had some expenses even if he has no records. I’ve never heard of that happening though, but then I’m not an accountant.

  8. Steve added on  April 30th, 2009 at 12:18

    So what your saying bobby is your friend was hoping to stay under the radar but got caught.Think he deserves this headache now,don’t you.

  9. Ollie added on  May 5th, 2009 at 06:25

    please can you tell me what other allowable expenses a courier/delivery driver can set against income? I am new to this & need to do a self assessment at some point for 2008-2009. i will use the annual mileage allowance as it equates ok to petrol costs but not sure what else? the van is hired and GIT public liability & driver insurance are paid weekly to the contractor, included in the hire cost of van – can i still claim the van hire costs if i claim annual mileage allowance? is it just the insurance I can’t claim? the insurance payment I make covers GIT public liability & van insurance – thank you – any other info on allowable expenses etc would be brill – thank you

  10. Alec added on  May 5th, 2009 at 08:40

    The mileage allowance replaces anything that you could have claimed for in connection with vehicle purchase, rental and running costs – so you couldn’t claim an additional amount for van hire or vehicle insurance. GIT and PL insurance is nothing to do with your vehicle running costs, so if you’re paying for it as an identifiable extra on your van hire (ie if it’s itemised on the invoice or hire agreement) then you could claim that as well, but if it’s just a flat fee for the hire and the other things are lumped in then you probably can’t claim for the extra.

    This insurance sounds like an odd set-up – you really do need to make extra sure that you actually are covered for what you think you’re covered for and that it doesn’t just cover the contractor if he’s unable to make a claim against you.

  11. Brenton D'Silva added on  June 7th, 2009 at 16:56

    Im working for a technical courier firm on a self employed basis. Basically we courier IT parts to site and then install them.
    Times are hard at the mo and one of my colleagues who is also self employed has been subbed out through our tech courier firm to another firm.
    Using his own van, he is currently being paid £95 per day including the first 55 miles, then 12p a mile thereafter.
    Of course this is a really poor amount and hardly covers the cost of the diesel. Especially if he does 200 miles a day.
    Is there any sort of law or guidelines that have to be followed regarding this?
    I would really appreciate any feedback.

  12. ste added on  July 9th, 2009 at 14:25

    hi im thinking of setting up in this industry you all seem to know what you are doing, is it worth a try?? im just doing my homework on the buisness side of things , thanks ste.

  13. Alec added on  July 9th, 2009 at 14:49

    Probably not at the moment – unless there’s nothing else you can do to scrape by.

  14. amber added on  December 6th, 2011 at 15:55

    Hi can you tell me if you can claim capital allowances for the vehicle if you are using the mileage rate scheme of 45p and 25p ?

  15. Alec added on  December 6th, 2011 at 15:59

    No you can’t. The mileage rate replaces everything you could have normally claimed for with respect of the vehicle, except for the interest on any loan etc to acquire the vehicle.

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