Car Expenses for Sole Traders: Private Use vs Mileage Method

The Two Methods HMRC Allows

As a sole trader, you cannot simply claim your entire car running costs as a business expense. HMRC recognises that most people use the same car for both personal and business journeys, so you must either adjust your actual costs to remove the private element, or use the flat-rate mileage method. You must choose one approach and stick with it for the life of that vehicle.

Method One: Actual Costs with a Private Use Adjustment

With this method, you add up every cost of running the car during the tax year. That includes fuel, insurance, road tax, MOT, servicing, repairs, and depreciation (calculated through capital allowances on the purchase price). You then work out the percentage of total miles driven that were genuinely for business, and you claim only that proportion.

For example, if your total car costs for the year are £6,000 and 40% of your mileage is business-related, you can claim £2,400 as a deductible expense. You will need a mileage log to prove the split if HMRC ever asks.

This method also involves capital allowances on the car itself. Cars with CO2 emissions of 50g/km or less currently qualify for a 100% first-year allowance, again restricted by your business use percentage. Higher-emission cars fall into the 18% or 6% writing-down allowance pools. The paperwork is more involved, but for high-cost or low-emission cars with heavy business use, the tax relief can be significantly larger.

Method Two: The Simplified Mileage Allowance

The mileage method is straightforward. You claim a flat rate for every business mile driven, with no need to track individual costs or calculate depreciation. The current HMRC approved mileage rates for cars are:

• 45p per mile for the first 10,000 business miles in the tax year
• 25p per mile for every business mile above 10,000

So if you drive 12,000 business miles in a year, you claim (10,000 x 45p) + (2,000 x 25p) = £4,500 + £500 = £5,000. You cannot claim any separate running costs such as fuel, insurance, or servicing on top of this. The flat rate is meant to cover everything.

You still need a mileage log. HMRC expects you to record the date, destination, purpose, and miles for each business journey.

Which Method Is Better for You?

The mileage method tends to suit sole traders who drive a modest, inexpensive car and do a reasonable volume of business miles. It is simpler and requires less record-keeping. If your car is cheap to run, the flat rate may actually give you more relief than your real costs.

The actual costs method tends to work better if you drive a high-value or electric vehicle, have very high running costs, or your business use percentage is substantial. Electric and ultra-low emission cars bought new can benefit significantly from the 100% first-year allowance under this route.

One important restriction: once you use the mileage method for a particular car, you cannot switch to actual costs for that same car in a later year. HMRC treats the choice as permanent for that vehicle. If you buy a new car, you can choose again.

What Counts as a Business Journey?

Ordinary commuting to a regular place of work does not count as a business journey, even for sole traders. Travel between your home and a temporary workplace, visits to clients, travel to supplier meetings, and similar trips do qualify. Keep your mileage log up to date throughout the year rather than trying to reconstruct it at tax return time.

The Bottom Line

Run the numbers for your own situation before defaulting to the simpler mileage method. For many sole traders the mileage rate wins on simplicity, but if you have a relatively new, expensive, or low-emission car with high business use, actual costs could deliver meaningfully better tax relief. When in doubt, speak to a qualified accountant before filing your Self Assessment return.