How to claim business vehicle and travel expenses

Limited Companies, Sole Traders and Partnerships alike can claim business vehicle and travel expenses. Knowing what to claim and how can be a useful way of reducing your businesses tax liability.

Business vehicles can include cars, vans, motorcycles and even bicycles. Businesses can claim vehicle and travel expenses for all business related mileage, this can include; transporting goods, equipment and materials, travel to a client, travel to business meetings and any other travel directly related to the business.

It's important to note that if you’re a sole trader or in a partnership, you can’t have a vehicle owned by the company (as there is no company) but other options for claiming travel expenses are available and these are detailed below.

Limited Companies - Business Vehicle Options

1.       The Company Purchases the Vehicle

For this option the company would claim all of the vehicle expenses as a business expense including; the purchase price or lease payments, fuel, repairs, MOT, insurance, etc. This reduces the companies profit and in turn its corporation tax liability. The company may also be able to claim capital allowances against the vehicle.

However, any private usage of a company owned vehicle will be taxed as a benefit in kind. In most cases private usage includes driving home from a permanent work location.

2.       You Purchase the Vehicle and claim a mileage allowance from the Company

You incur the cost of purchasing and running the vehicle and the company then reimburses you for business mileage, for cars and vans this is calculated at 45p per mile for the first 10,000 miles and 25p per mile thereafter. There are different rates for motorcycles and bicycles.

The reimbursements are paid to you tax free but the company can claim expenses for this, reducing corporation tax liabilities.

Sole Traders and Partnerships - Business Vehicle Options

1.       You Purchase the Vehicle and claim a mileage allowance

As above. This counts as an expense so reduces profits and tax liabilities.

2.       Actual Cost Method

This method involves adding up all your mileage, business and private, and then working out the business mileage as a percentage of the total mileage. For example, you may find that 40% of your car journeys are business journeys, so 40% is the business proportion of the cars use.

You then apply the business proportion to all the running costs of the car, this can include; fuel, repairs, MOT, insurance, etc. For example, if your fuel bills total £2,000, then the business proportion of your fuel would be £2,000 x 40%, or £800. Do this for each running cost, these are the amounts that can be claimed as expenses, reducing tax liabilities.

Other Travel Expenses

Business expenses can also be claimed for other forms of travel including;

• Bicycles used for business travel;

• Public transport expenses such as the cost of train tickets to attend a business meeting;

• EV charging and equipment expenses;

• Parking costs;

• Parking fines, speeding tickets, late payment surcharges, etc cannot be claimed as business expenses.

Conclusion

It is beneficial to consider all options before deciding if the company will own the business vehicle and the expenses calculation method to be used.

Purchasing a business vehicle via a limited company may have other implications such as access to vehicle credit and the cost of insurance.