BIM75005 - Simplified expenses: expenditure on motor vehicles
S94D ITTOIA 2005
From 2013-14 onwards, businesses may use a fixed rate per business mile to compute their vehicle expenses under the new simplified expenses rules. They can use this method of relief as an alternative to keeping detailed records of actual expenditure.
The fixed rate deduction covers expenditure in respect of the acquisition, ownership, hire, leasing or use of cars (except cars designed for commercial use, for example black cabs or dual control driving instructor cars), motor cycles or goods vehicles used for the purposes of the trade.
This method of computing vehicle expenses is entirely optional, whether the business is also using the cash basis or not.
The key features of the scheme are:
Eligibility
All sole traders and business partnerships (excluding those with a corporate partner) can calculate their vehicle expenses using a fixed rate per business mile for the tax year 2013-14 onwards.
Once a business has adopted the mileage rate basis for a vehicle, it must be applied consistently from year to year for as long as the vehicle remains in the business. No actual expenditure or capital allowances can be claimed in relation to that vehicle. The business can only change to or from an ‘actual’ basis when a vehicle is replaced.
Qualifying journeys
The mileage rate is only available for journeys, or any identifiable part or proportion of a journey, that are wholly and exclusively for business purposes. It is not available for private journeys, such as travel from home to work, or for journeys that serve both a business and a private purpose.
It is therefore important that a contemporaneous record of business mileage is maintained to support any claim using the flat rate.
Costs covered by the mileage rate
The mileage rate covers the costs of buying, 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.
Costs not covered by the mileage rate
The mileage rate does not include incidental expenses incurred in connection with 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.
Capital allowances
If capital allowances have ever been claimed in respect of a vehicle, the mileage rate cannot be used for that vehicle. This is because the rate already contains an element to allow for depreciation.
Instead, the business proportion of the actual costs of running and maintaining the vehicle may be claimed as an allowable deduction in calculating the profits of the trade or profession, alongside capital allowances.
Mileage rate and cash basis
If a business has elected to use the new cash basis, it can also use the mileage rate, but only for vehicles on which no capital allowances have been claimed.
Under the cash basis rules, a business can have a deduction for expenditure on acquiring goods vehicles and motor cycles (but not cars). If the business has made such a deduction, it cannot use the mileage rate in respect of that vehicle, but can claim the business proportion of the actual costs of running and maintaining the vehicle.
Business mileage rates
The rates per business mile that can be claimed for the 2026-27 tax year are:
Vehicle | Flat rate per business mile |
Cars and goods vehicles first 10,000 miles | 55p |
Cars and goods vehicles after 10,000 miles | 25p |
Motorcycles | 24p |
The number of people in the vehicle does not affect the rates.
Previous business mileage rates
The rates per business mile that can be claimed up to and including the 2025-26 tax year are:
Vehicle | Flat rate per business mile |
Cars and goods vehicles first 10,000 miles | 45p |
Cars and goods vehicles after 10,000 miles | 25p |
Motorcycles | 24p |
The number of people in the vehicle does not affect the rates.
Transition between old and new rates for non-tax year periods of account
If a business has a period of account that does not coincide with a tax year, it may be necessary to add or apportion the profits or losses of one or more period of account to work out the profits or losses for the tax year (see BIM81201). A period of account may start in one tax year and end in another which has different mileage rates.
When calculating the taxable profit for a tax year, a business should use the mileage rates that apply to that tax year. To calculate the profits of any given tax year, the profits of the period of account must be calculated, before apportionment, in accordance with the mileage rates that apply to that tax year. This is demonstrated by the following examples.
Example 1
A person has a period of account ending 31 December each year and needs to calculate their taxable profit for the 2025-26 tax year.
In the period of account ending 31 December 2026, the person incurs a total of 12,000 business miles. Exclusive of a deduction for vehicle expenditure, profits for the period of account total £50,000. The person claims simplified expenditure on motor vehicles.
The deduction for vehicle expenditure for the period of account ending 31 December 2026 will need to be calculated in accordance with the mileage rates that apply for the 2025-26 tax year. The deduction will be calculated as follows:
- 10,000 x 45p = £4,500
- 2,000 x 25p = £500
The total deduction will therefore be £5,000 and total profit is £45,000. The profits for the period of account will then need to be apportioned to the 2025-26 tax year.
Example 2
The same person as in Example 1 needs to calculate their taxable profit for the 2026-27 tax year. The mileage rates that apply for the 2026-27 tax year are different to those that applied for the 2025-26 tax year. The deduction for vehicle expenditure for the period of account ending 31 December 2026 will need to be calculated in accordance with the mileage rates that apply to the 2026-27 tax year. The deduction for vehicle expenditure will be calculated as follows:
- 10,000 x 55p = £5,500
- 2,000 x 25p = £500
The total deduction will therefore be £6,000 and total profit is £44,000. The profits for the period of account will then need to be apportioned to the 2026-27 tax year.