Self-employment- motoring expenses - what can you claimfor?

I am self-employed.
Can anyone explain to me what I may include in my sole trader accounts in the way of motoring expenses?
I have a car and of course it needs all the usual, road tax, petrol insurance, Mot, servicing. I partially use it for business purposes, partially for my part-time employed work and partially for leisure.
When I was in a partnership we used to put all the petrol and servicing bills in the accounts, but I have a feeling this was not correct, but I did not do the accounts in those days.
I have read about 40p per mile for the 1st 10.000 miles, but is this just for petrol?
Do you absolutely HAVE to log all your miles? What about if you just put down a very reasonable amount for petrol?
I rang HMRC but they did not have the ready answer believe it or not!
I want to be honest to the HMRC, but fair to myself as I think I do not put enough down in my accounts.

:j
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Comments

  • dolby21
    dolby21 Posts: 97 Forumite
    I too am having the same annoying problem with HMRC. I used to pay for petrol 50% personal use, 50% business use. I thought this was fair as I use far more miles for business use. I was inspected the other week by HMRC and they basically said I need to prove EVERY single business mile covered. My argument back was that I was doing this process for ease to myself and doing myself out of pocket for that benefit.

    I now have to log every journey done each day with the total miles for the day (how annoying). Its a pain in the rear but will end up with a few quid extra at the end of it.

    I know it does not answer you q s above but I home someone from HMRC who uses this site may comment
  • fengirl_2
    fengirl_2 Posts: 4,530 Forumite
    You have a choice - either include the 40p/25p per mile, or the full running costs of the car. But you have to stick to one method and you have to use method 2 if you are VAT registered. The 40p pm is to cover all running costs, not just petrol and with rising costs for running a car, you may find the full cost method more beneficial. HMRC will not advise you on any deduction as this is your business and they cannot dictate how you run it.
    You do need to log all you miles and if you are using the full cost method, you will need to add back to your profit the proportion of your miles which ralate to private journeys on your self assessment.
    What you were doing when you were in partnership was perfectly correct and you can continue to do this, but do add back your private use as failure to do so is an invitation for HMRC to investigate you.
    £705,000 raised by client groups in the past 18 mths :beer:
  • Hi
    thanks for your answer- but I am still confused.
    I am not VAT registered , and need to know exactly how to put down motoring expenses on my tax return.
    I do relatively few business miles but of course running a car at all is expensive.
    Do you have to log ALL miles in both cases?
    Please clarify how each system works.
    Sorry- i am a bit thick!
  • jimmo
    jimmo Posts: 2,281
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    If you use the 40ppm/25ppm all you have to do is keep a record of your business journeys.

    If you want to use the strict method then you should keep a full record of all your journeys in the car separating business journeys and private journeys.
    You also need to keep a full record of every penny spent on the car which then has to be apportioned between business and private.
    Opinions tend to vary on which is the best method but really it all depends on your circumstances. However in my opinion, for what its worth, the fundamental issue is the car you are driving. I believe that the single, most significant factor in running a car is depreciation. You might look at miles per gallon after that.
    If you acquire a brand new car on a regular basis or you drive a Chelsea Tractor which will give you really poor miles per gallon then it could be worth your while using the strict basis.
    If you use a 5 year old fiesta or focus then the car will not now be suffering huge depreciation and you should be getting very reasonable miles per gallon. As a generalisation the 40ppm/ 25ppm will really be for you.
    Ask yourself how much work you are prepared to put into your mileage claims.
    The 40ppm /25ppm scheme is really a bit rough and ready and requires a lot less record keeping.
  • Debt_Free_Chick
    Debt_Free_Chick Posts: 13,276
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    What to put in your accounts really depends on how accuately you want to reflect your motor expenses. Even if you claim for tax on the 40p per mile basis, there is nothing to stop you preparing your accounts to show the full cost of your motor expenses and some would argue that this is what you should do.

    Either way, you have to keep a record of every journey you make for business purposes. This is a relatively straightforward four-column spreadsheet to show Date, From, To & Total miles travelled.

    Option A - 40p per mile
    At the end of the year, total the miles travelled column and multiply that by 0.40
    Put the answer in your tax return as "Motor Expenses".

    Option B - actual costs
    (NB - you need a mileage reading at the beginning of the year and one at the end of the year too - in addition to the record of business mileage)
    Throughout the year keep a record of everything you spend on running/maintaining the vehicle i.e.

    Fuel
    Oil
    Tax
    MOT
    Servicing
    New tyres etc

    At the end of the year, calculate the total miles travelled from the two mileage readings. Total the business miles travelled and divide this by the total mileage over the year. Let's say that business mileage was 30% of the total.

    In your accounts, you put 30% of the total cost of running the vehicle as motor expenses. In addition, you put depreciation in your accounts too.

    When you do your tax return, you transfer the figures for motor expenses and depreciation from your accounts. You then have to "disallow" the depreciation and claim capital allowances instead - there's a column on your tax return for disallowed expenses and a separate box for capital allowances.

    The capital allowance is a straight 25% of the pool brought forward from last year. The "pool" is simply an imaginary group of different items for which you are claiming capital allowances e.g. plant, machinery, office equipment. These are the items that usually appear on your balance sheet rather than your profit & loss account.

    As jimmo says, the 40p per mile expense involves less record keeping and might work out better than the actual expense method - although, that's getting more marginal given the current cost of fuel.

    The actual expense method is technically more correct as it shows you the actual cost to the business of motor expenses - this is vital for pricing those costs into your products/services.

    Note that you do not claim capital allowances if you use the 40p method as HMRC deem the 40p per mile to cover ALL motor expenses, including depreciation.

    HTH
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • That is very bloody kind of you- you are more help than the HMRC!

    xxV
  • Debt_Free_Chick
    Debt_Free_Chick Posts: 13,276
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    veronica46 wrote: »
    That is very bloody kind of you- you are more help than the HMRC!

    xxV

    Perhaps you caught me on a good day ;)

    Either way, you are very welcome :A

    You might be interested in this site which is an online bookeeping tutorial. It's American, so use with care, but the basic principles are pretty sound and it's the best site I've found for help with preparing accounts.

    Tax, of course, is a different matter but we try to help here. Jimmo is a great poster, not least as he's an ex-Inspector of Taxes :eek: :eek: :A

    I'm self-taught and not the greatest technician, but try to pass on what I've learned ... including my mistakes!!!! :D
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • thanks for all your help everyone. I feel a bit more on top of it now. I am an artist not an accountant, but i am learning!



    XXXXXs:T:beer: all round
  • dolby21
    dolby21 Posts: 97 Forumite
    i too would like to show my thanks here. This has solved all my questions etc. Thanks all
  • stphnstevey
    stphnstevey Posts: 3,224
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    The 40p per mile option seems to work for me - if you had a high priced car where depreciation would be a big issue, then the actual costs might be better.

    I imagine at 40p a mile, 20p goes on fuel and 20p goes on depreciation, maintenace and running costs. So 10k miles = £2000.

    For me, using a small car that costs about £7,000, over three years the car has paid for itself and the rough running costs (£1000 over 3yrs if no major work).

    This with very little accounting - I have to account for my mileage to my client, so I am used to accounting for every journey.


    What about VAT?
    Can you claim it back on the 40p a mile system?

    It appealed to me buying a van (not a car as claiming back VAT on a car is very difficult unless solely and exclusively for business use only) in the business name and claiming back the VAT. But then I guess you would have to use the 'actual costs' system?
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