BIM47701 - Specific deductions: travel & subsistence: use of vehicle: mileage rates: introduction

The following guidance explains when self-employed taxpayers can use mileage rates to compute their vehicle expenses. They can use this method of calculating relief as an alternative to keeping detailed records of actual expenditure.

This method is intended to make things simpler for small businesses. No one has to use it. Taxpayers who do not use it should deduct the actual amount they spend. In either case the journey must be made wholly and exclusively for business purposes.

• This page sets out the way the scheme works in general.
• Features of the scheme that apply from 6 April 2002 onwards are set out in BIM47702.
• Features of the scheme that applied up to 5 April 2002 are set out in BIM47703.

Who may use a mileage rate?

Taxpayers can compute their expenses using a fixed rate per business mile if the annual turnover of their business is less than the VAT registration threshold when they first use the vehicle.

We use the VAT registration threshold as a convenient limit whose real value is regularly reviewed. Our practice has no application to VAT accounting and does not affect existing VAT rules and practices. The use of the VAT registration threshold may be reviewed if there is an increase in the threshold substantially in excess of the rate of inflation.

Taxpayers can only use the mileage rate basis if they apply it consistently from year to year. They can only change to or from an ‘actual' basis when a vehicle is replaced.

If the turnover of the business increases and exceeds the VAT registration threshold, then the taxpayer should continue to use the mileage rate basis until the vehicle is replaced.

If there is a change in the VAT threshold, then the taxpayer should continue to use the same basis until the vehicle is replaced.

Which journeys qualify for allowance?

Taxpayers can only claim the amount per mile basis for journeys that are wholly and exclusively for business purposes.

Taxpayers cannot claim the allowance for private journeys, such as travel from home to work, or for journeys that serve both a business and a private purpose.

Further guidance on when travel costs are allowable can be found at BIM37600 onwards.

What costs are covered by the mileage rate?

The mileage rate covers the costs of running and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle.

So if a taxpayer uses the mileage rate basis then they cannot claim any additional amount for these expenses.

What costs are not covered by the mileage rate?

The mileage rate does not cover costs that are specific to a particular journey such as tolls, congestion charges and parking fees. These will be allowable as a deduction where they are incurred solely for business purposes.

The taxpayer can claim the business proportion of the interest on a loan used to purchase the vehicle or the finance element of a hire purchase or finance lease.

Capital allowances

If a taxpayer uses the mileage rate basis then they cannot claim capital allowances in addition. This is because the payment rates already contain an element to allow for depreciation.

Ownership

It is not necessary for a person who claims mileage rate basis to be the legal owner of the vehicle. All that is necessary is that the taxpayer claiming the expense is paying the costs of running and maintaining the vehicle.

A taxpayer may not use a mileage rate basis if the vehicle is provided by an employer in circumstances giving rise to a benefit. The taxpayer may not use a mileage rate if the vehicle is a pooled vehicle.

Since the mileage rates already contain an element reflecting depreciation, no further deduction can be made for the capital element of a hire purchase or finance lease arrangement.