If you are self-employed, it might seem like you don’t pay tax on your car expenses. But there are some rules about what you can claim for your car expenses, and how much you can claim. This guide explains everything you need to know about claiming for your car expenses.
What qualifies as a business mile?
HM Revenue & Customs (HMRC) says it will start collecting data about how much people travel for business purposes. This could include trips taken to meet clients, attend conferences or meetings, or even go shopping.
If you’re a sole trader, or self-employed person, you’ll pay Class Four national insurance contributions (NI) on any miles driven purely to carry out your job.
But if you’re an employee, or someone working for another employer, you won’t have to pay NI if you use your car for work. You might still have to pay tax though – see our guide to paying taxes.
The rules around whether you pay NI depend on where you live. For example, in England and Wales, employees must pay NI if they drive for work. In Scotland, however, employers have to cover the cost of driving for work.
In Northern Ireland, there’s no requirement for companies to provide transport for workers. But if they do, they have to pay NI. And in the Republic of Ireland, employees have to pay NI if they drive to work.
The Difficult Way: Total Everything
If you’re like most people, you probably don’t do a lot of math. If you did, however, you’d realize that there are many ways to calculate the total value of your vehicle. Some methods are easier than others, but no matter which one you choose, you’ll still need to add up everything correctly. Here’s how to figure out the exact price of your car.
Start by taking the Kelley Blue Book Value of Your Car
Kelley Blue Book values cars based on several factors, including depreciation, condition, miles driven, age, and even options. To find the KBB value of your car, go to kbb.com/car-value/. Enter the make, model, and trim level of your car into the search bar. Then select either the current market value or the book value option. Once you enter your information, the site will show you the value of your car.
The Simple Method: Simplified Expenses from HMRC
If you want to calculate how much you can deduct from your income tax bill each month, there are some simple rules to follow. But it might take a little while to work out what you can claim. Here are the basics…
1. Calculate your total monthly salary.
2. Multiply that figure by 0.8% – this gives you the amount you can claim as a deduction for ‘expenses’.
3. Add up all your claimed deductions.
4. Subtract the sum from your gross pay.
5. Divide the remainder by 12.
6. Round down to the nearest pound.
7. Claim £100 per month.
You’ll find the full list of expenses here.
How can I compute the personal and business mileage of my vehicle?
Mileage logging is one of those things that sounds like it should be simple, but isn’t. If you’re looking to record how far you travel each day, keeping a mileage logbook might seem like a good idea. But there are a few important points to remember about working out the best way to keep a mileage logbook, especially if you use your vehicle for both business and pleasure.
You could try recording every mile you drive in a calendar app such as Apple Calendar, Outlook, Google Calendar, etc., but that won’t necessarily give you accurate information. For example, if you take public transport to work, you might not be able to accurately calculate your total daily mileage. You could also set up a route planner app on your phone, but that requires you to input certain data into the app, including your starting location, destination, mode of transport, and the number of stops along the way. This makes it difficult to compare the distance travelled over different routes.
If you’re driving a car, you’ll probably find it easier to keep a mileage log using a pen and paper. Start by writing down the date, time, and place where you drove, followed by a brief description of what you did during the journey. Then add up all the distances you travelled and divide that figure by the total number of days since you began keeping records. However, you’ll still need to factor in the average speed of your vehicle, the type of terrain you drive on, and the weather conditions.
If you‘re unsure whether your trip qualifies as “business” or “pleasure”, make sure you include the following categories in your mileage log:
• Business – trips taken to meet clients, attend conferences, meetings, training sessions, etc.
• Pleasure – trips taken for leisure purposes, such as taking the kids to school, shopping, running errands, sightseeing, etc.
• Transport – trips taken to pick someone up or drop off somewhere.
How do I keep a mileage log?
A mileage log helps you track where you go, how far you travel, how often you use gas, and whether it makes sense to buy a car with better gas mileage. You can also use a mileage log to help you budget your expenses.
There are several different types of mileage logs. Paper logs are easy to write down and store, but they don’t always show exactly what happened during each trip. Apps like TripLogger and Mileage Log Pro can sync with your smartphone and make sure you enter every detail about your trip. If you prefer to keep things old school, there are even some pens and pencils designed specifically for recording your mileage.
What is a mileage calculator used for?
A mileage claim calculator helps drivers estimate how much money they could save by filing a mileage claim. This tool works best for people who don’t file mileage claims because it requires information about where you live and work. You’ll enter your home address, your current vehicle registration number, and whether you’re filing a mileage claim for the city, state, or federal government. Then, it calculates how many miles you’ve driven since purchasing your car and provides a range of potential savings.
If you’re looking to file a mileage claim, here’s what you need to know:
• If you drive fewer than 10,000 miles annually, there is no maximum amount of miles you can claim.
• Your mileage claims must be filed within five years of purchase.
• Mileage claims are paid out monthly, quarterly, semiannually, or yearly depending on the type of claim you file.
For more information on mileage claims, check out our blog post.
How I Save Over £1k Per Year On Car Insurance By Using This Simple Trick!”
I’ve always been very careful about my car insurance. My policy covers everything except third party damage – i.e. theft/theft, vandalism etc. So I pay around £35 per month for it. However, I recently came across a method called “The Add Up Method”.
This is where you add up every single expense related to your car over a period of 12 months. For example, let’s say you spend £100 on petrol each week. You could add this up and see how much you spend per year, then compare this figure to what you’re paying now. If it’s cheaper, there’s no reason why you shouldn’t switch!
So here are some examples:
£100 x 52 weeks £5200
£1000 x 12 months £12000
If you’re paying £35 per month for car insurance, you’d save £7000 over 12 months.
You might think that this sounds like a lot of money, but actually, it isn’t. In fact, once you start doing it, you’ll realise that you haven’t even noticed the cost of your current car insurance premiums.
Additional Car-Related Costs
If you’re heading into town to meet with a potential client, make sure you take along your parking ticket receipt. A whopping 60 per cent of sole traders admit they don’t keep receipts worth less than £10, according to research from MoneySuperMarket. But even though it might seem like a small amount, the cost adds up fast.
The average car park charge in London is around £11, while in Manchester it’s just over £8. And if you’ve got kids, the price goes up considerably – a family of four could end up paying over £20 each time they go out.
The British government announced earlier this week that drivers will no longer be charged to use some roads under the control of Highways England, including the M6 Toll Road, A1(M), A66(M) and A69. Drivers will still pay tolls to enter certain sections of the M25, M4, M62, M74, M8, M20, M23 and M42 motorways. There are exceptions to this rule, however, such as the Tyne Tunnels, where motorists must pay up front.
Drivers will now be able to keep receipts proving that the trips were business related. If you decide to take advantage of this perk, make sure you do it within six months of driving. Otherwise, the money will go towards general revenue.
Then, Which Method Do You Prefer?
There are two ways to calculate how much tax you’ll pay. One is called the’simple’ method and one is called the ‘complex’ method. If you’re self-employed, it might help you to know what each method involves.
The simple method
If you earn £10,000 a month, you can use the simple method to work out your tax bill. This works out how much money you make and divides it by 12. Then you add up how many months there are in a year and multiply that number by 20%. So, if you earned £10,000 a year, you’d pay £2,000 in tax.
The complex method
This method takes into account things like deductions, allowances and reliefs. To do this, you take your gross salary, deduct any expenses you’ve paid, such as rent, mortgage interest and council tax, and divide the rest by 52 weeks. This gives you your taxable earnings.
You add together how many hours you worked during the year, multiplied by the national minimum wage, and divide that figure by 40 working days. Multiply this figure by 0.8% and you get your basic rate of tax.
Multiply the remainder by 25%, and you get your additional rate of tax. Finally, add up how many dependants you have and multiply that figure by 16%. This gives you your total tax liability.
Frequently Asked Questions
What if I use my own vehicle for work?
You might think it’s simple enough – just show up at work every day, take your car into the garage, and go home again. But there are some things you need to know about using your own vehicle for business travel.
If you’re self-employed, it’s important to understand what the law says about working while you’re away from home. You must ensure that you don’t fall foul of employment laws such as the Working Time Regulations 1998. This could mean not being paid overtime for hours worked over 40 per week, or having to provide breaks for lunchtime and tea breaks.
We set out the main rules here that apply when you use a car or van for business trips. These include:
• Your employer needs to pay you for each journey you make during the course of your normal duties.
• You must keep records of your journeys, including where you went, how long it took and why.
• If you use your own car, you must charge the appropriate fuel surcharge.
What are the acceptable mileage reimbursement rates (AMAP)?
The approved mileage allowance payment (also known as AMAP) rates are: 45p per mile for journeys within the UK; 45p per mile for international journeys; 45p per kilometer for domestic journeys outside London; 25p per mile for domestic journeys inside London; 25p per kilometer for international journeys outside London; 24p per kilometer for all domestic journeys; 24p per kilometer for all international journeys; 24p per mile for all journeys within London; 20p per mile for all other journeys.