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If you are a sole trader or in partnership and you use a car, motor cycle or goods vehicle for the purposes of your trade, you can claim a deduction for the costs incurred in doing so. To save work and remove the need to keep detailed records of actual costs incurred, under the simplified expenses rules a statutory deduction can be claimed by reference to a fixed rate per mile.

For 2015/16, the appropriate mileage rate for cars and vans is 45p per mile for the first 10,000 business miles and 25p per mile thereafter. The appropriate mileage rate for motor cycles is 24p per mile.

The mileage rate covers the cost of buying and maintaining the vehicle, and also depreciation. Consequently, where mileage rates are used, it is not possible to claim a further deduction for fuel costs, servicing and MOT and suchlike. However, a further deduction can be claimed in respect of incidental costs incurred in connection with a particular journey, such as road tolls or the congestion charge. A deduction can also be claimed for the finance element where the vehicle is acquired under a hire purchase arrangement or finance lease.

However, it is not possible to claim a deduction by reference to mileage rates if capital allowances have ever been claimed in respect of the vehicle.

If the business has elected to prepare accounts under the cash basis, it can claim a deduction by reference to mileage rates as long as capital allowances have not been claimed. However, a business using the cash basis cannot claim a deduction by reference to mileage rates for goods vehicles and motor cycles if a deduction has been claimed for the cost of acquiring them.

You do not have to use the mileage rates for all vehicles. However, once you have chosen to use this method for a particular vehicle, you must continue to use this method as long as you use the vehicle for your business.

Example:
Sarah is a sole trader. She uses her own car for business and private journeys. In the year to 31 March 2016 she undertook 14,000 business miles.

To save work, she claims a deduction based on the appropriate mileage rate of £5,500 when computing her taxable profits for the year to 31 March 2016.

The deduction is computed as follows:
10,000 miles@ 45p per mile    = £4,500
 4,000 miles @ 25p per mile    = £1,000
Total deduction                        = £5,500