Would I be better off using the Mileage Allowance Scheme?

Self-employed people with a turnover under the VAT registration threshold (whether they’re registered or not) are allowed to claim HMRC Approved Mileage Rates instead of actual running costs. 40p/mile for the first 10,000 miles then 25p/mile.

Since the government haven’t raised the rates since the scheme was introduced in 2002 it’s not quite as beneficial as it once was but it can still be a very tax-efficient, and simple, way of claiming your vehicle expenses under certain circumstances.

It works best for owner-drivers with rented small vans doing very high mileages. 2500 miles per week equals about £650 allowance for £85 rental, £20 insurance & £250 fuel.

If you use the scheme you can’t claim any other expenses for ANY vehicle costs except for hire-purchase interest. You can’t claim fuel or vehicle insurance but you can still claim for congestion charge, tolls, GIT etc.

You have to keep a full, accurate log of your journeys and mileages and be able to prove that you covered all the mileage on business. Records have to be kept for 6 years after the end of the tax year and the Revenue can and do check records randomly.

The allowance is charged to your Profit & Loss account as if it was a normal expense and can do a nice job of decimating your profits for both Income Tax and Tax Credit purposes.

Posted under Finance and Accounting

Posted by Alec at 4:00 pm, March 31, 2008

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