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.

Richard wrote:
Steve

I am not sure what you mean, if you were employed & your company sent you to London you would charge them mileage 44p per mile there & back.

40p/mile, not 44p.

Richard wrote:
There is no legal obligation for you to declare it to taxman or anyone else.
There is no obligation to keep any records

Apart from the detailed written log of all your journeys.

Richard wrote:
Taking that a step further you own the van & pay all of the outgoings. You receive 44p per mile while driving it. It sucks all of the money out of limited company into your tax free pocket.

You can even assume the 44p includes vat (its a loophole exploit it while it still exists)

You’re only allowed to claim the VAT on the fuel element, not on the full mileage allowance and now you’ve got to keep VAT receipts at least covering the VAT claimed.

Richard wrote:
Basically Gordon turned this bit of legislation into a Dogs dinner & he is too arrogant to revisit it (Suits me fine)

In practice the current situation is no different to the situation that existed for years before the newest legislation was brought in. All that’s really changed is the mileage rates and the fact that the allowance is statutory rather than concessionary.

It’s worth pointing out that the self-employed also have the option of using the mileage allowance scheme providing their turnover isn’t over the VAT registration treshold.

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. Can’t claim fuel or vehicle insurance but you can still claim congestion charge, tolls, GIT etc.

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 P&L 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. 

Firstly it only applies to employees, not the self-employed who should be keeping proper records anyway.

Secondly the ruling only means that employees’ fuel reimbursements will have to be supported by a VAT receipt if the company wants to reclaim the VAT and only the VAT paid on fuel used for business purposes will be recoverable.