Motor Expenses for the self employed

In practice I find the most misunderstood business expenses is the humble motor expense.

When a self employed person uses their own car for business I often find a batch of petrol receipts amongst their paperwork. Now let us just stop and think about this.

The key rule for a business expenses is that it has to be wholey and exclusively for the trade in question.

So how can we prove that a £20 petrol receipt is for the business and not also used for the weekly shop or dropping the kids off at school? The answer is you cannot.

So what do we need to do?

KEEP A BUSINESS MILEAGE LOG !

For every business journey record the date, where you went and the round trip mileage.

It can be in a note book, on an expense form or a piece of paper. It does not matter but you need to write it down and keep that record.

What do we do with this log.

There are two ways a self employed person can claim motor expenses using this business mileage log.

Method 1. Simply claim 40p per mile for each business mile on your Business Mileage Log.
If you have over 10,000 buiness miles in a year for each mile above the inital 10,000 the rate drops to 25p per mile. The 40p per mile covers fuel, depreciation, servicing, repairs, tyres, RFL, insurance and MOT. So do not add any additional motor expenses over and above the mileage claim.

Method 2. Put through all your motor expenses; fuel, servicing, repairs, tyres, MOT, RFL, insurance. Plus you add the car in as an asset and depreciate it. Now this is where the business mileage log comes in as you need to disallow an element for personal use. So take the overall mileage for the year and work out using your business mileage log the percentage that was business and the percentage that was personal, You need to disallow the personal percentage of all your motor expenses.

As you can see method 2 is far more complicated and you really need professional advice to operate it. It is also prone to loss of receipts.

That is a quick run through of motor expenses. I would recommend that you get an accountant to advise you on the best method.

The advice given in this blog is general and generic and you should always obtain professional advice on your specific situation from an accountant.