How Your Accounting Method Impacts Expense Claims
Before diving into specific vehicle-related expenses, it’s important to identify the accounting method you use in your business. This choice affects what you can claim and how the claim is made.
Sole traders typically use either traditional accounting or cash basis accounting.
Traditional accounting involves recording income and expenses by the invoice or billing date, regardless of when money changes hands. In contrast, cash basis accounting is based on the actual movement of funds—the date payments are received or made.
This distinction matters, especially when claiming vehicle purchases. Under traditional accounting, you may be able to claim capital allowances for a car purchased for business use. If you’re using cash basis accounting, capital allowances can only be claimed on a car if you’re not using simplified expenses. For other vehicles, such as vans or motorcycles, the treatment is different and often more generous, as explored below.
Claiming for the Purchase of a Vehicle
When a sole trader buys a vehicle for their business, the cost can often be claimed in one of two ways: capital allowances or annual investment allowance, depending on the type of vehicle and how it’s used.
If you purchase a van, motorbike, or truck for business use, you may claim the full purchase price using annual investment allowance. This deduction is made in the year the asset is purchased and used, allowing you to reduce your taxable profit accordingly.
Cars are treated differently. Under traditional accounting, cars qualify for capital allowances instead of AIA. The amount you can claim each year depends on the car’s CO2 emissions. For example, low-emission cars (under 50g/km) may qualify for 100% first-year allowances, while others qualify for writing-down allowances at either 18% or 6% of the car’s value annually.
These deductions reduce over time and can be affected if the car is later sold. If you dispose of the vehicle after claiming allowances, you may need to account for a balancing charge, which could increase your taxable profits in the year of sale.
For the claim to be valid, the vehicle must be used wholly and exclusively for business. Mixed use vehicles, such as a car used for both personal and work trips, require a business-use percentage to be calculated based on accurate mileage tracking.
Leasing or Hiring a Vehicle
Leasing or hiring a vehicle instead of purchasing outright can provide flexibility and reduce the initial outlay for a sole trader. These expenses are also generally deductible as long as the vehicle is used solely for business purposes.
If the vehicle has low carbon emissions (below a specified HMRC threshold), the full lease or hire cost is usually allowable. If emissions exceed the threshold, only a percentage of the cost is deductible. This rule helps to promote the use of environmentally friendly vehicles in business.
When leasing a vehicle, keep a copy of the lease agreement and ensure invoices clearly show the rental costs. Also record any additional charges you incur for mileage or wear and tear when the vehicle is returned. These charges may also be allowable if the vehicle was used entirely for business.
It’s important to understand that vehicles used partly for private purposes will need apportionment. This means only the portion used for business can be claimed as an allowable expense.
Fuel Costs for Business Travel
One of the most common recurring vehicle expenses for sole traders is fuel. It’s also an area where many mistakenly overclaim, especially when not separating business and personal journeys properly.
Fuel used to travel between home and a regular workplace is not classed as business mileage and cannot be claimed. However, travel from home to a variety of client sites or supplier locations qualifies as a business journey and the associated fuel is deductible.
There are two ways to claim for fuel costs:
- Using actual expenses: This involves keeping receipts for fuel purchases and calculating the proportion used for business.
- Using simplified expenses: A flat mileage rate includes the cost of fuel and other vehicle running costs.
To claim under the actual expenses method, a mileage log must be maintained. This should include:
- Date of the journey
- Starting point and destination
- Number of miles travelled
- Purpose of the journey
Supporting receipts must also be kept to show fuel purchases. This evidence will be required if HMRC ever asks for proof.
If you claim the simplified mileage rate, detailed receipts are not necessary, but you still need to track your business mileage consistently. Sole traders must avoid claiming fuel for personal use. Submitting false information is considered fraud and can lead to penalties or more serious consequences.
Choosing Between Actual Costs and Simplified Mileage
Both actual costs and simplified expenses are valid ways to claim vehicle running costs, but choosing the right one depends on your business circumstances.
If your vehicle incurs high fuel or maintenance costs, the actual expense method may yield a larger tax deduction. However, it comes with more administrative work and the need to apportion for any personal use.
The simplified method is easier to manage and provides a consistent deduction based on business mileage. Under this method, you claim:
- 45p per mile for the first 10,000 business miles per year
- 25p per mile thereafter
- 24p per mile for motorcycles
This flat rate includes all running costs such as fuel, servicing, insurance, and depreciation. Once you start using the simplified method for a specific vehicle, you must continue using it for that vehicle as long as you own or lease it.
Avoiding Common Fuel Claim Mistakes
It’s easy to make errors when tracking mileage or claiming fuel expenses, especially when personal use is involved. One common mistake is assuming all travel from home to client sites qualifies automatically as business mileage. This is true only if your work has no fixed base and each client visit is a temporary workplace.
Another mistake is failing to maintain receipts or using estimated mileage rather than an actual log. These errors can raise red flags during a tax review. To remain compliant, always record actual distances travelled and the reason for each journey. Use GPS tracking apps or accounting tools to simplify the process and reduce manual error.
Vehicle Use for Both Business and Personal Travel
Sole traders often use the same vehicle for both personal and business activities. When this is the case, only the proportion of costs related to business travel can be claimed. Let’s say you drove 12,000 miles during the tax year and 7,000 of those miles were for business. You can claim around 58% of your total vehicle running costs if you’re using the actual cost method.
This percentage applies to fuel, insurance, servicing, repairs, and other related expenses. It does not apply to capital allowances for vehicles unless the vehicle is used exclusively for business purposes. To calculate the correct percentage, mileage must be carefully recorded. Estimations without evidence may be rejected by HMRC.
Claiming Capital Allowances on Mixed Use Vehicles
If you use a car for both work and personal travel, you can still claim capital allowances, but only for the business-use percentage.
For example, if a car was purchased for £15,000 and is used 60% for business, only £9,000 of that cost can be considered when calculating the writing-down allowance.
Depreciation itself is not an allowable deduction, but capital allowances allow you to spread the cost of the asset over time. Cars with high emissions qualify for lower allowances, while lower-emission vehicles offer more generous deductions. Keeping detailed records of how you determined the business-use percentage is important in case HMRC questions the calculation.
Maintaining Records for Vehicle Expenses
Whether you use simplified expenses or actual costs, you must keep all relevant documentation for five years after the 31 January submission deadline of the relevant tax year.
This includes:
- Purchase invoices
- Lease agreements
- Fuel receipts
- Insurance documents
- Maintenance and servicing invoices
- Toll and parking receipts
- Mileage logs and journey details
Digital apps can simplify this process by allowing you to scan receipts, track mileage, and categorise expenses as they happen. This reduces the risk of lost paperwork and makes submitting your Self Assessment tax return more efficient.
Keeping Business Vehicles Roadworthy
For sole traders who rely heavily on vehicles for their work, ensuring that the vehicle remains roadworthy is not just a matter of safety—it is a key part of managing operational efficiency and staying compliant with regulations. Regular maintenance and inspections are critical, and fortunately, many of these expenses are allowable deductions that reduce overall taxable income.
We’ll explore the next essential group of vehicle-related costs that sole traders can legitimately claim, helping them maintain financial control while keeping their vehicles in top condition.
Servicing Your Business Vehicle
Routine servicing is a core part of vehicle upkeep, especially when a vehicle is used daily for transporting tools, visiting clients, making deliveries or navigating long distances. Depending on the vehicle manufacturer’s guidance, services may be scheduled annually or after a specific number of miles, usually around every 10,000 to 12,000 miles.
If the vehicle is used exclusively for business purposes, the full cost of servicing can be claimed as an allowable business expense. This includes:
- Labour charges for routine checks
- Oil and filter changes
- Brake pad inspections or replacements
- Engine diagnostics
- Any other general maintenance items listed in a typical service schedule
If the vehicle is used for both business and personal purposes, only the business-related portion of servicing costs can be claimed. The apportionment should be based on accurate mileage tracking. For example, if 75 percent of the miles driven over the year were for business, then 75 percent of the servicing cost is deductible. It is vital to keep service invoices, maintenance reports, and payment receipts to support any claim made on a Self Assessment tax return.
MOT Costs and Compliance
Vehicles that are three years old or more must pass a Ministry of Transport (MOT) test each year to ensure they meet safety and environmental standards. The MOT is not optional—it’s a legal requirement for driving on UK roads.
For sole traders, the MOT cost is an allowable expense if the vehicle is used for business purposes. If the vehicle is used partially for personal use, then, as with other expenses, the claim must reflect only the business-use percentage.
In addition to the basic MOT fee, any necessary repairs to pass the MOT, such as tyre replacements, brake repairs or emission-related fixes, can also be claimed if they relate to business use. These costs must be supported by invoices and dated records. Being diligent about MOTs ensures not only safety and legality but also helps avoid unplanned downtime that could affect income.
Replacing Tyres, Batteries and Windscreens
Even with regular servicing, certain vehicle components wear out and require replacement. This includes tyres, batteries, wiper blades, brake pads, headlamps, and windscreens. All such replacement costs are deductible as business expenses if the vehicle is used solely for business. For example, if a sole trader who drives frequently for customer visits needs to replace tyres due to wear, the full cost can be claimed.
Likewise, if a windscreen cracks and needs replacing, the cost of both parts and labour is claimable. However, if the vehicle is shared with personal use, the percentage used for business must be calculated and only that portion claimed. To support your claim, save all receipts, supplier invoices, and any accompanying documentation showing the reason for the replacement and the vehicle registration details.
Insurance Costs for Sole Trader Vehicles
Having the right insurance coverage for a business vehicle is essential, not only for legal compliance but also for financial protection. A standard car insurance policy may not cover work-related use, especially when carrying tools, products or clients.
Sole traders need to ensure they have the appropriate type of insurance based on their business needs. Common policy types include:
- Commercial vehicle insurance: Required when the vehicle is used to carry equipment, make deliveries or travel frequently for work
- Courier insurance: For businesses involved in delivering goods to customers
- Motor trade insurance: Suitable for mechanics, car dealers, or those who work with multiple vehicles
The insurance premium can be claimed as an allowable expense, either in full for vehicles used only for business or as a percentage based on business mileage if the vehicle has mixed use. Insurance documents, renewal notices, and bank statements showing payment should be stored as part of your records. These help verify the claim in case of a review or audit.
Road Tax and Licensing Fees
Registering and taxing a business vehicle involves mandatory fees payable to the Driver and Vehicle Licensing Agency (DVLA). When a vehicle is registered for the first time, a fee is charged. This initial registration cost, along with annual vehicle excise duty (road tax), is deductible if the vehicle is used exclusively for work. For vehicles with mixed use, the road tax claim must also be adjusted proportionally.
It’s worth noting that vehicles with lower CO2 emissions may qualify for reduced road tax, which benefits both the environment and your tax planning. All payments made to DVLA should be recorded, and proof of these payments (such as the confirmation email or bank statements) should be retained for at least five years.
Vehicle Breakdown Cover
Breakdown cover is an important safety net, especially for sole traders who depend on being mobile and punctual. Whether you’re driving long distances to client sites or operating in remote areas, a mechanical failure without cover could lead to significant delays and loss of income.
Many sole traders opt for comprehensive breakdown packages that include roadside assistance, home start, recovery and onward travel. These policies vary in price depending on the level of coverage, vehicle type and frequency of use.
If the vehicle is used entirely for business, the full cost of breakdown cover can be claimed as an allowable expense. In cases of mixed use, only the business-use portion should be claimed. Documents including the breakdown policy details, payment receipts and any callout records should be filed for reference.
Parking Costs While Working
While on the job, parking can become a daily necessity—especially for sole traders who operate in urban areas, visit multiple client sites, or deliver products in city centres.
Parking fees incurred while carrying out business-related tasks can be claimed in full as allowable expenses. Examples include:
- Pay-and-display tickets
- Multi-storey car park receipts
- Metered parking payments made via app or credit card
However, parking fines, clamping charges and penalty notices are not allowable business expenses under any circumstances. These are considered personal liabilities, even if incurred during a work-related trip. To ensure accurate claims, keep all physical or digital receipts and note the reason for each parking expense if it’s not obvious.
Toll Roads and Ferry Crossings
Certain journeys may require the use of toll roads, tunnels, or ferry services, particularly if clients are spread across wide regions or located in areas connected by such routes.
Toll charges for roads such as the M6 Toll, the Dartford Crossing, the Mersey Gateway Bridge, or regional tunnels are claimable if the journey was business-related. Similarly, ferry crossings for transporting goods or accessing client locations can also be deducted.
As with all vehicle-related expenses, the claimable amount depends on how the vehicle is used. If it’s exclusively for business, the full toll or ferry charge can be claimed. If the vehicle serves dual purposes, the business-use percentage must be applied. Receipts or account statements from toll operators or ferry companies should be saved, along with notes or logs showing the date and business purpose of each journey.
Using a Personal Vehicle for Work
Some sole traders may choose to use a personal vehicle for work rather than purchasing a separate business vehicle. This is common when the vehicle is used for both private life and business duties.
In this case, the running costs cannot be claimed in full. Instead, the individual must calculate the percentage of mileage that relates strictly to business journeys and apply that to the total annual costs.
Examples of claimable costs in this case include:
- Insurance
- Fuel
- Servicing
- Repairs
- Road tax
- MOT
An alternative to calculating actual costs is to use the simplified mileage method, which allows you to claim a fixed rate for each mile driven for business. This method simplifies recordkeeping but can result in a lower total claim if the vehicle is expensive to run.
Whichever method is used, consistency and accurate mileage tracking are key. If you choose actual costs for a vehicle, you must continue using that method for as long as you own or lease it. The same applies to the simplified method.
Evidence and Compliance for All Claims
Every claim made as a business expense must be supported by appropriate documentation. HMRC can request to review claims for up to six years, though standard practice is to retain documents for five years after the Self Assessment deadline.
For vehicle-related claims, this includes:
- Invoices and receipts
- Bank and credit card statements
- Insurance and lease agreements
- MOT and service records
- Mileage logs with trip details
- Toll and parking confirmations
Failing to retain supporting evidence could lead to rejected claims, penalties, or additional scrutiny. Sole traders are encouraged to implement a systematic approach to documentation to protect their finances and reputation.
Understanding Simplified Expenses for Vehicles
Managing vehicle-related costs can be complex for sole traders, especially when handling repairs, servicing, and insurance. For those looking for a more straightforward way to handle business-related vehicle expenses, the simplified expenses method may be a practical solution.
Simplified expenses allow sole traders to claim vehicle use at a flat rate per mile, eliminating the need to keep track of individual costs such as fuel, insurance, or repairs. This method is especially useful for sole traders who use their own personal vehicle for both business and personal travel.
The flat mileage rates are fixed by HMRC and cover all vehicle costs, including:
- Fuel
- Insurance
- Repairs and servicing
- Road tax
- MOT
- Tyres and general wear
This removes the burden of tracking each individual expense. Instead, you only need to keep an accurate mileage log for every business journey made.
Current Flat Mileage Rates
The simplified expenses scheme offers the following mileage rates:
- Cars and goods vehicles: 45p per mile for the first 10,000 business miles each year, then 25p for additional miles
- Motorcycles: 24p per mile regardless of total mileage
For example, if you drive 12,000 business miles in a tax year using a car, you can claim:
- 10,000 miles x £0.45 = £4,500
- 2,000 miles x £0.25 = £500
- Total allowable expense: £5,000
These rates are designed to be inclusive, so you cannot claim separately for fuel, insurance or maintenance when using the simplified method.
Who Can Use Simplified Expenses
The simplified mileage method is available to sole traders and business partnerships (where none of the partners is a company). It cannot be used if you operate as a limited company.
You can only use the simplified method for vehicles that you have not already claimed capital allowances on. Once you begin using simplified expenses for a particular vehicle, you must continue using it for that vehicle for the entire duration of ownership.
This method is ideal for:
- New businesses that want to avoid complicated recordkeeping
- Part-time traders with relatively low mileage
- Sole traders who use personal vehicles for business occasionally
However, if you run a business with high vehicle running costs, tracking actual expenses may result in a larger deduction than using flat mileage rates.
Keeping Accurate Mileage Records
Even when using simplified expenses, you are required to keep detailed records of all business journeys to justify your mileage claim.
Your records should include:
- Date of the journey
- Purpose of the journey
- Start and end location
- Number of miles driven
Many traders use mileage-tracking apps to automatically record trips using GPS data, but manual logs are acceptable if consistently maintained.
A sample entry might look like:
- Date: 5 April
- From: Home office to client premises (Manchester)
- Purpose: Project meeting with client
- Miles: 82 miles round-trip
Without a mileage log, claims may be disallowed in the event of an audit.
Combining Business and Personal Use
Many sole traders use the same vehicle for both personal and business use. In such cases, it is not acceptable to claim 100 percent of vehicle costs unless the vehicle is used solely for work.
To claim actual vehicle expenses in this scenario, you need to apportion the costs between business and personal use. This is done by calculating the percentage of miles driven for business purposes versus total mileage.
For example:
- Total annual mileage: 20,000 miles
- Business-related mileage: 15,000 miles
- Business-use percentage: 75 percent
If your total vehicle running costs for the year were £8,000, you could claim 75 percent of this amount, or £6,000, as an allowable expense.
This method requires you to keep detailed records of mileage and all receipts related to fuel, servicing, repairs, insurance and tax.
Choosing Between Actual Costs and Simplified Expenses
Sole traders can choose between claiming actual vehicle costs or using the simplified mileage method, but not both for the same vehicle. Your decision should be based on which method provides the greater tax deduction and suits your bookkeeping practices.
When deciding, consider:
- The cost of running your vehicle: If your vehicle is expensive to run and maintain, claiming actual costs may yield a higher deduction.
- Your time and effort: If tracking expenses is time-consuming, the flat-rate method may be preferable.
- Frequency of vehicle use: If you don’t drive many business miles, simplified expenses may be more beneficial.
To make an informed decision, it may be helpful to compare total claim amounts under both methods for the same period. This can show which one provides the greater deduction.
Changing Methods for New Vehicles
You can change from actual costs to simplified expenses or vice versa, but only when you begin using a new vehicle. Once you adopt a method for a specific vehicle, you must continue using it for as long as you use that vehicle in your business.
This prevents switching methods to manipulate tax deductions in any one year. Plan ahead by projecting how long you will use the vehicle and estimating the likely mileage and expenses over time.
Avoiding Common Claim Errors
Incorrect or inflated vehicle claims are among the most common issues flagged in tax reviews. Sole traders need to ensure their claims are accurate, honest and well-supported by documentation.
Here are common errors to avoid:
- Claiming for personal journeys: Commuting between home and a regular place of work is not a business journey and cannot be claimed.
- Failing to adjust for mixed use: If a vehicle is used for both business and personal travel, only the business-use proportion of expenses is deductible.
- No supporting evidence: Lack of receipts, invoices or mileage logs may lead to claims being denied.
- Double claiming: Claiming both mileage and actual fuel/maintenance expenses for the same vehicle is not allowed. You must choose one method.
Regularly updating your records and reviewing your logbook will help ensure compliance.
Documenting Vehicle Use
Whether you claim actual costs or use simplified expenses, clear and consistent documentation is essential. Keeping good records throughout the year reduces stress when completing your tax return and protects you in the event of a review.
Documents to retain include:
- Vehicle logbooks or mileage logs
- Fuel and service receipts
- Insurance policy documents
- Lease or purchase agreements
- Toll and parking records
- MOT certificates
- Vehicle registration and tax documents
You are generally required to keep these records for five years from the 31 January filing deadline following the relevant tax year.
For example, for the 2024/25 tax year, you must keep records until at least 31 January 2031.
Using Apps and Digital Tools
With the growing availability of digital tools, many sole traders are opting to track vehicle use with apps and software. These tools can help with:
- Automatic mileage tracking
- Storing digital copies of receipts
- Categorising expenses
- Estimating potential tax claims in real-time
Using digital tools can reduce the risk of human error and make it easier to complete your Self Assessment accurately. Choose an app that allows you to download or export your records in the format required for tax returns.
When Vehicle Costs Can’t Be Claimed
Not all vehicle-related costs are eligible for deduction. It is important to understand what is outside the scope of allowable expenses to avoid problems.
The following are not allowable:
- Penalty charges or parking fines
- Speeding tickets or congestion charge fines
- Private journeys not related to business
- Personal-use portion of mixed-use vehicles
- Costs for vehicles not used in the business at all
If there is any doubt over whether an expense is allowable, reviewing HMRC guidance or seeking professional advice is strongly recommended.
Tax Planning with Vehicle Expenses
Strategically managing vehicle costs can reduce a sole trader’s taxable income significantly. Planning vehicle use, tracking business mileage, and choosing the right deduction method are key components of effective tax management.
Additional strategies may include:
- Timing vehicle purchases before year-end to accelerate deductions
- Choosing vehicles that qualify for favourable allowances
- Keeping an up-to-date mileage log to support your preferred deduction method
- Claiming annual investment allowance for vans or trucks used exclusively for business
Being proactive about tracking and claiming vehicle expenses will result in a more accurate and beneficial Self Assessment return.
Conclusion
For sole traders, vehicles are more than just a convenience—they are often essential business tools. Whether you drive to client sites, deliver goods, or pick up supplies, the costs of purchasing and operating a vehicle can quickly add up. Thankfully, many of these expenses are allowable for tax purposes, offering a practical way to reduce your taxable income and improve your financial position.
Understanding what can be claimed, how to record it properly, and when to apply simplified or actual expense methods is critical to staying compliant with tax regulations. From capital allowances on vehicles and annual investment allowances for vans or motorbikes, to recurring costs such as insurance, servicing, breakdown cover, parking fees, and tolls, each category plays a part in your tax planning strategy.
Equally important is the method of calculation. Simplified expenses offer a convenient flat-rate alternative, particularly useful for those who prefer not to track every individual cost. However, for those with higher vehicle running expenses, recording actual costs and apportioning based on business use can lead to greater deductions—provided the records are accurate and complete.
Avoiding common mistakes, such as claiming personal journeys or neglecting to document mileage, is essential. Keeping detailed logs, storing receipts, and using digital tools for tracking can help you build a solid case for every claim you make on your tax return. As every trader’s situation is unique, regularly reviewing your approach and choosing the most beneficial method can lead to long-term savings and peace of mind.
Ultimately, by fully understanding and leveraging allowable vehicle-related expenses, sole traders can operate more efficiently, make informed financial decisions, and retain more of their hard-earned income.