If you use your private car for business journeys when you are running your own company, what are the rules surrounding this?
When you are a contractor with your own company, you need to get to your contract site each day. If you are traveling in your car, you can claim a mileage allowance for the business use of your private vehicle and this is then treated as a business expense.
Both company directors and employees can claim for mileage for business journeys from their employer. If you are an employer, you pay your employees under the HM Revenue & Customs (HMRC) approved rates (AMAP). The employees can claim the difference up to the HMRC rates via their Self Assessment tax returns at the end of the tax year.
Perhaps you may be concerned about looking after the environment. If this is you, and where practical, you may decide to travel to your contract site by bike or motorcycle instead.
The rates that are available when you are using your private car for business journeys
The car mileage rates set by HMRC do increase from time to time. The rates, however, have been the same for the last few years. These rates are 45p for the first 10,000 miles travelled in the tax year. the rate then reduces to 25p for each mile after that.
These rates apply to both privately owned cars and vans.
HMRC set the rates at a generous level, which are to reimburse you for all of your private vehicle running costs. The rates are there to cover fuel, repairs, and maintenance. The rates also include road fund tax, insurance, and servicing. Therefore, when you claim for mileage via your business, you are not able to claim for any of your other private car running costs.
The only other car-related costs that you can claim for when using your private vehicle for business journeys are parking fees and road tolls.
The types of business journeys that you may undertake in your private car
Besides travelling to and from your contract site and work locations, other journeys that you may undertake could include:
There may come a time when you obtain a contract that is so far away it is not practical to either travel there and back each day or stay away during the week and travel back at weekends. In this case you may consider relocating permanently and there are certain areas to consider here.
Mileage logs and reclaims when using your private car for business journeys
It is important to keep a log of your business journeys. This should include dates, starting and finishing locations, and the number of miles. You need this just in case HMRC asks to see these at a later date. The record can be electronic or on paper. However, you must keep this.
To calculate how much you can claim, you can multiply the number of business miles by the applicable mileage rate. Your company can reimburse you any mileage owed regularly.
HMRC and reimbursing your mileage
When HMRC performs an inspection, this will include checking all of your expenses claims and making sure that these are all in order. Therefore, this means keeping receipts and relevant business records to back up any claims made from your business. Therefore, it is key that you retain any relevant records for both you and your employees.
You may have just started up and your company, and it does not yet have any funds. If this is so you have two choices when it comes to reimbursing your mileage allowance:
- Wait until your company has generated some funds, and these are in your bank account and then reimburse yourself accordingly.
- Introduce your funds to your company, and then you can reimburse yourself. These are also fully reimbursable to you once the company has the funds to be able to do this.
Other thoughts when using your private car for business journeys
If your company is VAT registered and you are operating under the normal VAT scheme, you can reclaim some VAT. There is the VAT element that you can claim within your mileage. This VAT is at HMRC set rates. To be able to do this, you need to obtain and retain your fuel receipts.
Claiming for your business mileage is also subject to the two-year rule.
Therefore, if and when you are aware that you will be at your contract site for longer than twenty-four months, you are no longer able to claim for your mileage to your contract site.
Additionally, if you take an employee to their work site in your vehicle, you are also able to claim from your company. The additional rate is 5p per mile tax-free.
If you pay more than the HMRC approved rates, the excess will be taxable on you. Therefore, it is important to make sure that you stay inside these allowed rates.
Thank you for reading my article that covers the use of your private car for work. It may be the case that you are on the road every day.
On the other hand, you may make the occasional business journey.
However, it is good practice, and I would advise you to keep track of your mileage. If you do this, it will help you to reduce your company’s tax bill, and you also end up with more money in your pocket.
I have another article that compares the use of your private vehicle to that of a company car. This looks and the tax implications between the two.
Link to Contractor Advice UK group on