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★ Key takeaway
Self-employed UK drivers in 2026 claim vehicle tax and running costs via two methods: simplified mileage (45p per mile for first 10,000 business miles, 25p thereafter; 24p flat for motorbikes) or actual cost method (vehicle tax, insurance, fuel, servicing proportioned to business use). Limited company directors and sole traders have different treatment. VAT-registered businesses can reclaim VAT on fuel and qualifying costs. |
UK self-employed drivers in 2026 can reclaim vehicle tax and running costs through two HMRC-approved methods: the simplified mileage method using HMRC's approved mileage rates (45p for the first 10,000 business miles a year and 25p thereafter for cars, 24p flat for motorbikes), or the actual cost method which prorates vehicle tax, insurance, fuel, servicing and depreciation by the percentage of business use. The choice between methods depends on business mileage, vehicle value and accounting complexity. Limited company directors face different rules from sole traders, with tighter HMRC scrutiny on Benefit-in-Kind versus business use. VAT-registered businesses can reclaim VAT on fuel costs within specific rules. This guide covers each method, the 2025-26 rate anchors, and the record-keeping HMRC expects under BIM47700.
KEY FIGURES
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Simplified mileage method at HMRC Approved Mileage Allowance Payments rates
The simplified mileage method uses HMRC's Approved Mileage Allowance Payments (AMAP) rates to calculate allowable business expenses without needing to track individual costs. For cars and vans, the rate is 45p per mile for the first 10,000 business miles in the tax year, reducing to 25p per mile for miles above that threshold. Motorbike miles are paid at a flat 24p. Bicycle miles at 20p. These rates have been stable since 2011-12 and were unchanged for the 2025-26 tax year.
The simplified mileage method covers all vehicle costs including VED, insurance, fuel, servicing, depreciation and repairs in a single per-mile rate. Claimants cannot separately deduct individual costs on top of the AMAP rate. This suits drivers with lower business mileage (under 10,000 business miles a year) or with a vehicle where actual costs are comparable to the AMAP rate.
Actual cost method: proration by business use percentage
The actual cost method requires tracking every vehicle expense (VED, insurance, fuel, servicing, MOT, parking, tolls, tyres, depreciation) and then applying a percentage based on business use. A driver using the vehicle 60 percent for business and 40 percent personal deducts 60 percent of each cost from self-employment income. The £195 VED becomes £117 deductible. The £800 annual insurance becomes £480 deductible. Annual fuel of £2,400 becomes £1,440 deductible.
Business use percentage must be supported by a mileage log separating business miles from personal miles. HMRC guidance in BIM47700 expects a reasonable and contemporaneous record, with date, purpose and mileage for each business trip. Electronic apps such as Mileage Book, MileIQ or Driversnote automate this, reducing admin friction significantly. The actual cost method typically suits high-mileage drivers, high-value vehicles, or drivers with distinctively high running costs compared to the AMAP average.
Sole trader vs limited company treatment
Sole traders and unincorporated partnerships use the simplified or actual cost methods as described above, deducting from self-employment profits on the Self Assessment return. Limited company directors face tighter rules: a company-owned car used personally is a Benefit-in-Kind taxed at the employee's marginal rate, while a personal car used for business uses the AMAP rate via an expense claim.
For many limited company directors, paying AMAP rates from the company for business mileage on a personal car is the most tax-efficient structure, since the AMAP payment is tax-free to the employee and deductible to the company. Directors should take independent accounting advice on their specific circumstances, as the optimal structure depends on business mileage volume, vehicle age and cost, and the director's marginal tax rate.
VAT-registered businesses: fuel and vehicle VAT rules
VAT-registered businesses can reclaim VAT on business fuel, typically using the simplified fuel scale charge method which applies a standard amount of VAT based on vehicle CO2 emissions, rather than tracking individual business vs personal fuel use. For car purchases, VAT on a car used for both business and personal purposes is typically not reclaimable (HMRC VAT Notice 700/64), but VAT on a car used wholly for business (such as a pool car, taxi or driving instruction vehicle) can be reclaimed in full.
Commercial vans used wholly or mainly for business can reclaim VAT on purchase, servicing, parts and fuel. Vehicle tax (VED) does not carry VAT, so no reclaim applies to VED itself. MOT fees also do not carry VAT. Drivers running a van-based trade (plumber, electrician, courier, landscaper) typically benefit substantially from VAT registration once turnover reaches £90,000, allowing full VAT reclaim on running costs.
Record-keeping for HMRC compliance
HMRC expects contemporaneous mileage logs showing date, start and end locations, purpose of journey and distance for every business trip claimed. Fuel receipts, VED payment confirmations, insurance documents, servicing invoices and MOT certificates should be kept. The record-keeping period is 5 years from 31 January following the tax year, so 2025-26 records must be kept until 31 January 2032.
Digital records via accounting software (Xero, QuickBooks, FreeAgent, Sage) satisfy HMRC requirements provided the underlying data is preserved and accessible. Many self-employed drivers use mileage tracking apps that integrate directly with accounting software, producing automatic mileage logs from GPS traces with trip purpose tags. This reduces admin friction considerably and improves audit trail quality compared to manual spreadsheets or paper logs.
Worked examples: which method suits different drivers
Example 1: a freelance consultant doing 5,000 business miles a year in a 3-year-old Ford Focus. Simplified mileage: 5,000 x 45p = £2,250 deductible. Actual cost (60 percent business use): VED £117, insurance £420, fuel £1,200, servicing £180, total £1,917 deductible. The simplified mileage method gives the higher relief in this case.
Example 2: a self-employed delivery driver doing 20,000 business miles a year in a leased van. Simplified mileage: 10,000 x 45p + 10,000 x 25p = £7,000 deductible. Actual cost (90 percent business use): lease payments £3,600, fuel £4,500, insurance £900, maintenance £540, VED £165, total £8,735 deductible. The actual cost method gives the higher relief for high-mileage operators with a business-focused vehicle.
Example 3: a part-time motorbike delivery rider doing 8,000 business miles. Simplified mileage: 8,000 x 24p = £1,920 deductible. Motorbikes consistently favour the simplified method given the flat 24p rate covers all running costs well.
Making Tax Digital and MTD for ITSA changes
HMRC's Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is rolling out progressively, starting April 2026 for sole traders and landlords with income over £50,000, and April 2027 for those over £30,000. Self-employed drivers within scope must use MTD-compatible software to keep digital records and submit quarterly updates to HMRC. Mileage records fit naturally into MTD-compatible digital accounting, making the transition relatively painless for drivers already using cloud accounting software.
Drivers outside MTD ITSA thresholds continue with annual Self Assessment returns using the same mileage or actual cost methodology. Crossing the threshold mid-year triggers a requirement to begin digital records from the start of the next tax year.
| Method | Cars | Motorbikes | Best for |
|---|---|---|---|
| Simplified mileage (AMAP) | 45p first 10k / 25p after | 24p flat | Low-moderate business mileage |
| Actual cost method | % prorated all costs | % prorated | High-mileage, high-value vehicles |
| Company car BiK | 3%-37% of list price | N/A | Ltd company, employee benefit |
| VAT reclaim pool car | 100% VAT on purchase | 100% VAT | Wholly business vehicles only |
| ★ EDITOR'S VERDICT Self-employed UK drivers have two main routes for vehicle cost relief, with HMRC's simplified mileage method suiting most smaller business users and the actual cost method rewarding high-mileage or high-cost vehicles. The 45p first-10,000-miles AMAP rate has been stable since 2011-12 and offers good value given fuel and maintenance inflation. Limited company directors should evaluate whether paying AMAP from the company beats a company car BiK arrangement, with the answer typically depending on mileage volume and vehicle CO2. Record-keeping discipline matters: HMRC expects contemporaneous mileage logs, and retrospective reconstruction rarely satisfies enquiries. |
| This article is for informational purposes only and does not constitute financial, legal, or motoring advice. Always verify with official sources before making decisions. |
Frequently asked questions
What is the AMAP rate for business miles?
45p per mile for the first 10,000 business miles in a tax year, then 25p per mile thereafter, for cars and vans. Motorbikes are 24p flat. Bicycles are 20p. These rates have been stable since 2011-12.
Can I switch between simplified and actual cost methods?
Once a method is chosen for a vehicle, it generally continues until the vehicle is sold or replaced. Switching mid-year is not normally allowed by HMRC. Choose the method that suits the full year at the start.
Is vehicle tax deductible on the actual cost method?
Yes, prorated by business use percentage. On a £195 VED with 60 percent business use, £117 is deductible. VED does not carry VAT, so no VAT reclaim applies.
Can a limited company pay me 45p a mile?
Yes. A limited company can pay AMAP rates to directors and employees for business mileage in a personal vehicle. The payment is tax-free to the recipient and deductible to the company.
What records does HMRC expect?
Contemporaneous mileage logs with date, purpose and distance for each business trip, plus fuel, insurance, VED, MOT and servicing receipts. Records kept for 5 years from 31 January following the tax year.
Can I reclaim VAT on my business car?
Only if the car is used wholly for business (pool car, taxi, driving instruction, self-drive hire). Mixed-use cars do not qualify for VAT reclaim on purchase. Business fuel VAT can be reclaimed via the scale charge method.
Does the mileage rate include VED and insurance?
Yes. The 45p and 25p AMAP rates include all vehicle costs (VED, insurance, fuel, depreciation, servicing, repairs). Drivers cannot separately deduct individual costs on top of the AMAP rate.
Sources
- HMRC BIM47700, Business Income Manual, travel expenses (accessed 2026)
- UK Government, Expenses if you're self-employed, gov.uk/expenses-if-youre-self-employed (2026)
- UK Government, Vehicle tax rate tables 2025-26, gov.uk/vehicle-tax-rate-tables (2025-26)
- HMRC VAT Notice 700/64, Motoring expenses (2026)
- UK Government, Self Assessment records, gov.uk/self-assessment-records (2026)
- HMRC Approved Mileage Allowance Payments rates (2025-26)
- HMRC Company car tax BiK rates 2025-26 (2025-26)
Internal links: UK vehicle tax bands · Company car tax BiK 2026 · Electric van vehicle tax 2026
