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  • FIRST POST
    veronica46
    Self-employment- motoring expenses - what can you claimfor?
    • #1
    • 27th Jul 08, 2:03 PM
    Self-employment- motoring expenses - what can you claimfor? 27th Jul 08 at 2:03 PM
    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.

Page 1
  • dolby21
    • #2
    • 27th Jul 08, 2:13 PM
    • #2
    • 27th Jul 08, 2:13 PM
    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
    • #3
    • 27th Jul 08, 4:04 PM
    • #3
    • 27th Jul 08, 4:04 PM
    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.
  • veronica46
    • #4
    • 27th Jul 08, 8:17 PM
    Self-employment- motoring expenses - what can you claimfor?
    • #4
    • 27th Jul 08, 8:17 PM
    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
    • By jimmo 28th Jul 08, 12:32 AM
    • 1,793 Posts
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    jimmo
    • #5
    • 28th Jul 08, 12:32 AM
    • #5
    • 28th Jul 08, 12:32 AM
    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
    • By Debt_Free_Chick 28th Jul 08, 2:15 AM
    • 13,147 Posts
    • 9,489 Thanks
    Debt_Free_Chick
    • #6
    • 28th Jul 08, 2:15 AM
    • #6
    • 28th Jul 08, 2:15 AM
    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
  • veronica46
    • #7
    • 28th Jul 08, 10:07 AM
    • #7
    • 28th Jul 08, 10:07 AM
    That is very bloody kind of you- you are more help than the HMRC!

    xxV
    • Debt_Free_Chick
    • By Debt_Free_Chick 28th Jul 08, 10:13 AM
    • 13,147 Posts
    • 9,489 Thanks
    Debt_Free_Chick
    • #8
    • 28th Jul 08, 10:13 AM
    • #8
    • 28th Jul 08, 10:13 AM
    That is very bloody kind of you- you are more help than the HMRC!

    xxV
    Originally posted by veronica46
    Perhaps you caught me on a good day

    Either way, you are very welcome

    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

    I'm self-taught and not the greatest technician, but try to pass on what I've learned ... including my mistakes!!!!
    Warning ..... I'm a peri-menopausal axe-wielding maniac
  • veronica46
    • #9
    • 28th Jul 08, 6:27 PM
    thanks - feel more confident now!
    • #9
    • 28th Jul 08, 6:27 PM
    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 all round
  • dolby21
    i too would like to show my thanks here. This has solved all my questions etc. Thanks all
    • stphnstevey
    • By stphnstevey 5th Aug 08, 10:47 PM
    • 2,719 Posts
    • 446 Thanks
    stphnstevey
    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?
  • whatatwit
    Can I just check that travelling to and from a fixed place of work/self employment is not allowable.
    In that if I have a shop, I can't claim for travelling to the shop.
    Official DFW Nerd Club - Member no: 203.
    • jimmo
    • By jimmo 6th Aug 08, 1:01 AM
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    jimmo
    Can I just check that travelling to and from a fixed place of work/self employment is not allowable.
    In that if I have a shop, I can't claim for travelling to the shop.
    Originally posted by whatatwit
    Exactly right.
  • technoflare
    I think you can still use the 40p/25p system if you are VAT registered, but it is not claimable in your VAT return.
    • ioscorpio
    • By ioscorpio 6th Aug 08, 2:30 PM
    • 2,316 Posts
    • 533 Thanks
    ioscorpio
    veronica46
    You could use VT Cashbook, which is a free package http://www.vtsoftware.co.uk/cashbook/index.htm

    There are free self employment courses run by HMRC, that are very good, i have just been on Becoming Self Employed and Self Assessment for the Self Employed.
    • stphnstevey
    • By stphnstevey 6th Aug 08, 4:51 PM
    • 2,719 Posts
    • 446 Thanks
    stphnstevey
    veronica46
    You could use VT Cashbook, which is a free package http://www.vtsoftware.co.uk/cashbook/index.htm

    There are free self employment courses run by HMRC, that are very good, i have just been on Becoming Self Employed and Self Assessment for the Self Employed.
    Originally posted by ioscorpio
    Where do you find out about these courses?
    • ioscorpio
    • By ioscorpio 6th Aug 08, 8:20 PM
    • 2,316 Posts
    • 533 Thanks
    ioscorpio
    You can apply online on the HMRC website or if you live in the Derbyshire area phone 01332 724410

    http://www.hmrc.gov.uk/bst/work.htm
    Last edited by ioscorpio; 06-08-2008 at 8:32 PM.
  • d_bravo
    Sorry to confuse matters but I currently log all business miles and am planning to use the AMAP method. However, a high portion of my business travel is in hire vehicles. Does anyone know if I can/should be claiming the cost of hire or do I just record mileage and claim the 40/25p allowance?
    • stphnstevey
    • By stphnstevey 6th Aug 08, 9:40 PM
    • 2,719 Posts
    • 446 Thanks
    stphnstevey
    The 40p/25p mile is for using your own car for work - not sure about hired cars, but presume you can claim back the cost someway??
    • jimmo
    • By jimmo 6th Aug 08, 11:45 PM
    • 1,793 Posts
    • 2,301 Thanks
    jimmo
    Sorry! Have I missed something? What is AMAP?
    This is a link to HMRC instructions on mileage allowances which, I hope explains a lot, especially about VAT. http://www.hmrc.gov.uk/manuals/bimmanual/BIM47701.htm
    If you extensively use hire cars then you have the same choice as someone who uses their own car. Either use 40ppm/25ppm or make a full claim.
    What you definitely cannot do is use 40ppm/25ppm for your own car and claim separately for hire cars.
    It’s only an opinion but I would have thought that using hire cars frequently is not exactly cheap and it could be tax efficient for you to use the statutory basis. However, as I said earlier it requires a lot more detailed record keeping.
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