Business Vehicle Expenses: Should You Claim Mileage Rates or Actual Running Costs?

Using your personal vehicle for business journeys? You may be able to reduce your taxable profits by claiming tax relief on the associated costs. However, choosing the right method can make a noticeable difference to how much you can claim.

Sole traders and partners in partnerships without a corporate partner generally have two options when calculating vehicle expenses: use HMRC’s simplified mileage rates or claim the actual costs of buying and running the vehicle.

Both approaches have their advantages, but the right choice depends on factors such as annual business mileage, vehicle running costs and how much record-keeping you are prepared to do.

Importantly, the decision is made separately for each vehicle. Once you choose a method, you generally need to continue using it for that vehicle while it remains in business use. Therefore, it is worth comparing both options before making a decision.

1. Claiming Business Expenses Through Simplified Mileage Rates

If you want to keep your business expense records straightforward, HMRC’s simplified mileage method could be a suitable option.

Instead of keeping track of every fuel receipt, repair bill, insurance payment and servicing cost, you can claim a fixed amount for each business mile travelled.

The mileage allowance covers the cost of purchasing, running and maintaining the vehicle, including fuel, oil, insurance, repairs, servicing, vehicle tax, MOT and depreciation.

HMRC Simplified Mileage Rates for 2026/27

The following rates apply from 6 April 2026:

For example, if you travel 12,000 business miles in your car during the tax year, your allowable mileage deduction would be:

• First 10,000 miles × 55p = £5,500
• Remaining 2,000 miles × 25p = £500
• Total allowable deduction = £6,000

This approach can significantly reduce the time spent managing vehicle-related paperwork.

What Records Should You Keep?

Although simplified mileage rates reduce the amount of paperwork required, you must still maintain accurate records of business journeys.

Your mileage records should include:

• The date of each business journey.
• The starting point and destination.
• The business purpose of the journey.
• The number of business miles travelled.

You should also be able to establish the overall business and private use of the vehicle.

Parking fees, tolls and congestion charges incurred on qualifying business journeys can generally be claimed separately. However, parking fines, speeding penalties and other traffic fines are not allowable business expenses.

2. Claiming Actual Vehicle Running Costs

If your vehicle is expensive to maintain or you cover substantial business mileage, claiming actual costs could produce a larger tax deduction.

Under this method, you calculate the total running costs and claim the proportion relating to business use.

Allowable vehicle expenses may include:

• Fuel and oil.
• Vehicle insurance.
• Road tax (vehicle excise duty).
• Servicing, repairs and MOT costs.
• Tyres and maintenance.
• Breakdown cover.
• Qualifying parking expenses for business journeys.

Where a vehicle is used for both business and personal purposes, you can only claim the business-related proportion of the costs.

For example, if 70% of your vehicle mileage relates to business activities, you would generally be able to claim 70% of the relevant shared running costs.

What About the Cost of Buying a Vehicle?

One of the biggest differences between the two methods is how the vehicle’s purchase price is treated.

Under the simplified mileage method, the mileage allowance already accounts for the vehicle’s purchase and running costs. You cannot claim additional capital allowances on the same vehicle.

With the actual cost method, you may be able to claim capital allowances on the vehicle’s purchase price, subject to the relevant tax rules and any restriction for private use.

The allowances available depend on the type of vehicle, its emissions, when it was purchased and the accounting method used.

For businesses using the cash basis, the purchase cost of qualifying goods vehicles and motorcycles may generally be deducted directly as a business expense rather than through capital allowances. Different rules apply to cars.

It is important to understand these differences before deciding how to claim tax relief.

3. Can You Change Your Vehicle Expense Method Later?

This is an important consideration that businesses should not overlook.

Once you have claimed capital allowances on a vehicle, you cannot subsequently switch to simplified mileage rates for that vehicle.

Similarly, if you have deducted the vehicle’s purchase cost as an expense under the cash basis, you cannot later use the simplified mileage method for that vehicle.

If you initially choose simplified mileage rates, you must generally continue using that method for as long as the same vehicle remains in business use.

This means you cannot switch to actual running costs in a later year simply because your repair, maintenance or fuel expenses have increased.

When you replace your vehicle, however, you can make a fresh choice for the new vehicle.

4. Which Vehicle Expense Method Should You Choose?

There is no single answer that works for every business. The most suitable method depends on your circumstances and the potential tax deduction under each approach.

When Simplified Mileage Rates May Be Better

The mileage method is often attractive to sole traders who:

• Drive an older or economical vehicle.
• Cover relatively low or moderate business mileage.
• Have modest vehicle running costs.
• Prefer straightforward bookkeeping.
• Want to avoid collecting and calculating numerous vehicle-related receipts.

Its main advantage is convenience, as you can calculate your deduction using business mileage rather than individually tracking running costs.

When Actual Vehicle Costs May Be Better

Claiming actual costs may be worth considering if you:

• Drive an expensive vehicle with substantial running costs.
• Cover a high number of business miles.
• Have significant servicing and maintenance expenses.
• Are purchasing a vehicle specifically for business activities.
• Could benefit from available capital allowances.

Electric vehicles may also require careful consideration because the capital allowance treatment can differ depending on whether the vehicle is new or second-hand and whether it meets the relevant emissions requirements.

Before choosing this approach, compare the potential deduction against the additional record-keeping involved.

5. Special Considerations for Business Partnerships

The vehicle expense rules also apply to eligible partnerships without a corporate partner.

The choice between simplified mileage rates and actual costs is made separately for each vehicle used in the business, including vehicles personally owned by individual partners.

Where a partner uses their personal vehicle for partnership business, the relevant business vehicle expenses can be included when calculating the partnership’s taxable profits, subject to the applicable rules.

It is therefore important for partnerships to maintain clear mileage records and ensure that vehicle expense claims are calculated consistently.

Final Thoughts: Make the Right Choice Before Claiming

Choosing between simplified mileage rates and actual vehicle running costs can have a direct impact on your business’s taxable profits.

While simplified mileage rates offer convenience and less administration, claiming actual costs may provide a better deduction for businesses with higher vehicle expenses or significant capital investment.

The key is to compare both methods before making your decision. Remember that the choice can affect how you claim expenses for the entire period the vehicle remains in business use.

If you are unsure which method is most tax-efficient for your circumstances, speaking to an accountant can help you make an informed decision and avoid costly mistakes.

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