How to claim mileage allowance
Many self-employed people claim mileage allowance to claim back the cost of using your own vehicle for business. Find out how to do so in this blog from GoSimple Tax.
This blog is just one of many resources IPSE provides for those seeking guidance and support on tax as a self-employed person.
To find it all in one place, visit our Self-Employed Tax advice page.
Self-Employed Tax
If you work for yourself and want or need a new vehicle, then you might consider leasing or financing a car rather than paying the full purchase price up front. And it’s a popular option in the UK, but is leasing a car tax-deductible when you’re self-employed?
Around 5 million of the cars being driven on UK roads are through lease deals, with 92% of new car purchases being made through finance in 2022. The availability of Personal Contract Purchase (PCP) offers, growth in electric vehicles and the rising cost of living have all made it more attractive to hire a car over a fixed period rather than owning it outright.
But should you buy or lease your next car if you’re freelancing or self-employed?
As the “lessee”, you’re taking out a short or long term rental agreement with the provider of the vehicle, known as the “lessor”. You’ll make fixed monthly payments to use a potentially brand-new car, and either hand it back, or own it via Hire Purchase and PCP deals. Contract terms are usually between two and five years. And the main contract options include:
PCP offers have proved incredibly popular as they provide lower monthly payments than HP deals, but still give you the option to buy the vehicle at the end of the contract, or simply hand it back to the lease provider.
Business Contract Hire is also a common choice for sole traders, partnerships and limited companies as you can avoid paying company car or van tax, whilst also reclaiming both business mileage and rental costs subject to some restrictions based on vehicle CO2 emissions.
Many of the main benefits to leasing a car if you’re self-employed will apply whether you choose a personal or business contract.
The key feature of car leasing is that you won’t own your vehicle until you potentially make a final payment. Which means you’ll be bound by the terms of the contract that you’ve signed, and won’t have a potentially saleable asset.
Hiring or leasing a car is an allowable and tax deductible expense, but you must disallow 15% of your costs if the vehicle CO2 emissions are more than 50g/km. This was previously set at 110g/km for vehicles leased or hired before April 1st, 2021.
Petrol, insurance, repairs and other related vehicle expenses will need to be recorded and claimed as actual costs if you’re a limited company director. You can also choose this option if you’re likely to accrue significant expenses due to your profession or choice of vehicle. Sole traders can choose to use a flat rate mileage allowance as part of their simplified expenses, which provide a set amount per mile to cover all costs, and you can find out how to claim mileage allowance, here.
If you’re VAT registered then you can reclaim up to 100% of the VAT paid on monthly leases and any maintenance packages. 50% is claimable on cars which are used for mixed personal and work purposes, and for vans you can reclaim the exact percentage of business use.
If you’re choosing a personal contract or agreement, then you follow the same procedures as any other applicant. Business leases are available by any of the following companies or organisations:
As part of the application, some or all of the following documents will be required, including proof of ID and address, recent bank statements and the most recent tax return. Even if you’re applying for a business lease, there will also be a personal credit check (including all partners in a partnership).
There are a wide range of car leasing and finance providers available, so make sure you take time to research and understand the options available before committing to a contract. And if you’re not sure about buying or leasing, or want advice specific to your individual situation, speak to a specialist accountant or tax advisor. IPSE members can find discounted offers from expert partners in our Marketplace.
Many self-employed people claim mileage allowance to claim back the cost of using your own vehicle for business. Find out how to do so in this blog from GoSimple Tax.
IPSE provides you with all the advice and guidance required to ease the burden of tax, delivered by knowledgeable and friendly taxation experts at Markel.
Find out how to be tax efficient, read expert tips about Self Assessments and tax year end, and learn about the importance of digital record keeping.
More on
IPSE's Joshua Toovey reviews the latest labour market data to explore how contractors could help alleviate the concerns of clients and outlines how the Chancellor could make this happen.
IPSE's Joshua Toovey uses the findings of the latest IR35 Spotlight report to outline why the rules are deeply damaging to both UK businesses and the wider economy.
Workwell's Contractor Accountancy Specialist Kina Soodin runs through everything you need to be a successful sole trader in 2024 - from calculating and paying tax to managing expenses and pensions.
With an update from government due in two weeks, IPSE's Joshua Toovey recaps what contractors should look out for in these proposals to regulate the umbrella company market.
IPSE’s Joshua Toovey argues that the Spring Budget was a missed opportunity as the latest findings from IPSE’s Freelancer Confidence Index reveal confidence and rates faltering.