Flat rates for mileage vs actual expenses. What is better?
Self-employed individuals and Partnerships with no companies as partners can choose between two methods when claiming vehicle expenses. The first method is using Flat Rates for mileage and the second is using actual Expenses. Let's compare them.
What are flat rates expenses?
Flat Rate Expenses are a predetermined amount of money that can be claimed as a tax relief. This can be done by Self-employed individuals or Partnerships with no companies as partners. They can be used to claim for things like the business costs of cars and associated costs of working from home.
The flat rate that can be claimed for the business cost of cars does not cover incidental costs that might be incurred during the use of a car for business. This means that finance fess, parking costs, tolls etc are not covered by the flat rates. For some of these costs, it may be possible to claim on top of the flat rate that you already receive.
How much can you expense when using flat rates for mileage?
The amount you can expense using flat rates for mileage is based on the number of business miles you have traveled.
The rates for the 2023/34 year are
- 45p per mile for cars and goods vehicles for the first 10,000 miles.
- After the first 10,000 miles, the rates goes down to 25p per mile.
- Motorcycles get a constant 24p per mile.
For example, if you have driven 15,000 miles in a car during the 2023/24 Tax Year, you can claim:
- 45p for the first 10,000 miles. This means
- 25p for the last 5000 miles.
So, this means you can claim 10000 x 45p + 5,000 x 25p = £4,500 + £1,250 = £5,750 in total.
If the same distance was travelled on a motorcycle, you could claim 15,000 x 24p = £3,600 in total.
What are the benefits and costs of using flat rates for mileage?
The main benefit of using flat rates for mileage is that it is easy to use and requires very little record-keeping. You simply need to keep track of the number of business miles you have traveled in your personal vehicle. This method is also beneficial if you do not have the receipts or records required to claim actual expenses.
The drawback of using flat rates for mileage is that it may not accurately reflect the actual costs of using your personal vehicle for business purposes. If your vehicle is expensive to run, you may end up under-claiming your Expenses.
What are actual expenses?
Actual Expenses are the costs associated with using your personal vehicle for business purposes. This includes fuel, insurance, maintenance, and repairs. To claim actual Expenses, you must keep detailed records of all expenses related to your vehicle.
How much can you expense when using actual expenses for mileage?
The amount you can expense with actual expenses is based on the actual costs associated with using your personal vehicle for business purposes. This method requires you to keep detailed records of all expenses related to your vehicle, including receipts and invoices.
What Are the Benefits and Drawbacks of Using Actual Expenses?
The main benefit of using actual expenses is that it provides a more accurate reflection of the costs associated with using your personal vehicle for business purposes. This means you may be able to claim a higher amount of expenses than you would with flat rate expenses.
The drawback of using actual expenses is that it requires a lot of record-keeping and can be time-consuming. You must keep detailed records of all expenses related to your vehicle, which can be difficult if you use your vehicle for both business and personal purposes.
In conclusion, flat rates for mileages are easy to use and requires very little record-keeping, but may not accurately reflect the actual costs of using your personal vehicle for business purposes. Actual Expenses provide a more accurate reflection of the costs associated with using your personal vehicle for business purposes, but require a lot of record-keeping and can be time-consuming. Ultimately, the method you choose will depend on your personal circumstances and the amount of time and effort you are willing to put into record-keeping.
