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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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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, 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 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.