Mileage rate or actual vehicle costs: which should you claim?

If you use a vehicle in your business, HMRC gives you two ways to turn that cost into a tax deduction: a flat rate per business mile, or a share of what the vehicle actually costs you to run. Both are legitimate. They can produce noticeably different results, and — the detail people miss — once you have used one method for a particular vehicle, you must stick with it for as long as you own that vehicle. So the time to compare is before your first return that includes it, not three years in.

Method one: simplified mileage

Under simplified expenses you claim a fixed amount for every business mile, and that single figure stands in for everything about owning and running the vehicle — fuel, insurance, servicing, repairs, MOT, depreciation, the lot.

The rates for cars and goods vehicles are 45p per mile for the first 10,000 business miles in the tax year, then 25p per mile after that. Motorcycles have their own flat rate of 24p per mile.

Things you can still claim on top, because they are journey costs rather than vehicle costs: parking, tolls and congestion charges for business journeys, plus travel that does not involve your vehicle at all — trains, taxis, hotels. Parking fines are never claimable under either method.

Who can use it: sole traders, and partnerships with no corporate partners. Who cannot: anyone who has already claimed capital allowances on that vehicle, or already deducted its purchase cost. The mileage rate quietly includes an allowance for the vehicle itself, so claiming both would be double-counting.

Method two: actual costs

Here you record everything the vehicle costs across the year — fuel, insurance, servicing, repairs, MOT, breakdown cover — then claim the business proportion, usually measured by the share of your total miles that were business miles.

On top of running costs, you can claim capital allowances for the cost of the vehicle itself: a deduction spread over time at rates that depend, for cars, on CO2 emissions. The rates and bands change, so check the current position on GOV.UK. The same business-use percentage restricts the capital allowance too — a car used 70% for business earns 70% of the allowance.

If you lease the vehicle rather than own it, lease payments join the running-costs pot instead of capital allowances — with restrictions for higher-emission cars, so check the current rules on GOV.UK before assuming the full business share.

The price of this method is record-keeping. Every fuel receipt, every garage bill, and a defensible business-use percentage — which still means keeping a mileage log.

When you change vehicle, the choice resets

The lock-in is per vehicle, not for life. Selling the old van and buying another is your reset point: you may choose afresh for the new vehicle, whatever you did before. That makes a replacement the natural moment to redo the comparison — a different purchase price, different running costs and a different emissions band can flip the answer even if your mileage pattern has not changed.

How to compare them fairly

Run both calculations on your own numbers before choosing. As a purely illustrative example of the method — not a prediction of your result:

Suppose you drove 12,000 miles in the year, of which 9,000 were business (75%), and the car cost £4,800 to run in total.

• Mileage method: 9,000 miles × 45p = a £4,050 deduction (if business miles passed 10,000, the excess would drop to 25p).
• Actual-cost method: £4,800 × 75% = £3,600 of running costs, plus whatever capital allowance the car's cost and emissions support.

In that illustration the winner depends entirely on the capital allowance — which is exactly the honest general answer. Cheap-to-run car and high business mileage tends to favour the flat rate; an expensive, thirsty or rapidly depreciating vehicle with a high business percentage tends to favour actual costs. Your numbers are the only ones that settle it.

Rules of thumb, held loosely

• Choose mileage when you value simplicity, your car is economical, or your business mileage is high relative to the car's running costs.
• Choose actual costs when the vehicle is costly to buy or run, business use is the dominant share, and you are disciplined about receipts.
• Vans and pickups used heavily for trade work often reward the actual-cost sums — but run them; do not assume.
• If you are VAT-registered, the interaction with VAT recovery adds another layer — take advice before deciding.

Either way, keep a mileage log

Both methods stand or fall on knowing your business miles. A usable log records the date, start and end points, purpose, and miles for each business journey. Remember that ordinary commuting — home to a regular base of work — does not count as business travel, and claiming it is one of the fastest ways to turn a routine HMRC check into an uncomfortable one.

The log does not need to be paper. A note on your phone the moment you park is enough, provided it is kept consistently. Consistency, not format, is what HMRC cares about.

What this looks like with us

When your bookkeeping runs through Elizabeth Bookkeeping, vehicle costs stop being a January archaeology project. Fuel receipts and garage bills are captured as they happen, mileage claims are drafted against your log, and the comparison between methods is something a person reviews with you rather than a guess made under deadline pressure. The workflow is the same for every entry: AI drafts. AgentLedger validates. People approve.

If you would like help choosing the right method for your vehicle — or someone to keep the records that make either method safe — Ask for Details.