How to Expense Mileage Through Your Limited Company

Introduction

Travel is an essential part of running a business. Whether it's meeting with clients, attending conferences or picking up supplies, business travel is a frequent occurrence for many small business owners, freelancers and contractors. 

If you use a personally-owned vehicle (including bicycles) for business travel, make sure you claim all allowable mileage through your company as it’s incredibly tax efficient, and can save you a small fortune versus paying for it personally.

But, how do you correctly expense this travel through your limited company? Let's dive into the specifics for cars, vans, motorcycles, and bicycles.

1. What counts as a business journey?

The type of vehicle you use doesn't change the basic principle here: not all journeys are considered business-related. Like all expenditure, you need to be able to justify that the expenditure (i.e. the travel) that is incurred is ‘wholly, exclusively and necessarily’ for business use. So, if you travelled to meet a prospective client or attending a business conference, these would be good examples of business journeys that you could claim mileage for.

However, the rules are slightly different for traveling to client sites or co-working spaces. These will be allowed as long as they are deemed a temporary workplace and you stay within HMRC's 24 month rule. We'll explain these below:

1. Temporary workplaces - the first test to apply is do you spend more than 40% of your working time here? If you only go into the office 1 - 2 days a week, for example, then you could satisfy this is a temporary workplace and expense the travel. If you spend more than 2 days out of a 5 day working week, then you'll need to consider the 24 month rule.
2. The 24 month rule - if you spend more than 40% of your time at this workplace, then the 24 month rule will come into effect. This rule allows contractors and freelancers to claim travel expenses (including mileage) for client sites or workplaces that they travel to providing this has not been a workplace for over 24 months. However, it's important to know, as soon as the contractor/freelancer knows they'll be spending over 24 months at this location, they can no longer claim the mileage. For example, if they had a 12-month contract at a specific location that they spend over 40% of their time at and they then win a 15-month contract, they could no longer claim any travel expenses.

2. How much can you claim for business mileage?

The claim amount varies based on the mode of transport:

Claimable Mileage Rates

These rates are designed to cover all associated costs, such as fuel, wear and tear, insurance, and maintenance. 

For example: If you've driven 1,000 miles in your car for business purposes, you can claim back £450. Meanwhile, if you've cycled 100 miles to client meetings, you can claim back £20.

‍Note: All of the costs should all be paid for from your personal account, not from the business account.

3. Understanding the Tax Savings on Travel Expenses

Travel expenses can be deducted from your taxable profit, thereby reducing the amount of corporation tax your company owes.

To illustrate: if you drive 1,000 miles and claim £450 for car mileage, this can lead to savings of up to £119.25 in corporation tax (if at the 26.5% marginal corporation tax rate). Scaling this up, if you drive 10,000 miles, you can claim £4,500. This translates to a potential corporation tax saving of up to £1,192.50.

When these travel expenses are correctly claimed, the company can reimburse you (whether you're the director or an employee) entirely tax-free. If you're VAT registered, it's also worth knowing that VAT can be reclaimed on the fuel element of the mileage. HMRC frequently change their rates in this regard, but Mighty will calculate this for you automatically. Please note: if you are reclaiming VAT, you should keep VAT receipts when purchasing petrol.

Furthermore, this system ensures that you aren't dipping into your personal finances to cover the company's travel costs. For example, this could avoid you needing to withdraw dividends (taxed at 8.75%, 33.75% or 39.35%) to pay for travel personally, so it’s critical you claim back for every qualifying journey you make, no matter how small. 

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4. How do you claim mileage?

So how do you actually claim the mileage back, keep track of everything and pay yourself? 

Regardless of your mode of transport, to claim back mileage expenses, it's crucial to maintain a comprehensive record of your journey. 

How to claim in Mighty: 

Platforms like Mighty make this a breeze:

• Go to Mileage Claims under the Expenses menu
• Enter the date, start location and end location. Mighty will automatically calculate the miles for you and there's a checkbox for if this was a round trip.
• You can then select ‘Car’, ‘Motorcycle’, or ‘Bicycle’ as appropriate.
• If you are VAT-registered, you can also select the engine type and Mighty will automatically calculate the VAT element of the mileage.

Mighty manages the calculations, applies the tax savings, and confirms the amount you can pay yourself tax-free. 

When claimed correctly, the business mileage is tax deductible for the company and you won't have to pay tax or national insurance on the amount you reimburse yourself for business travel.

How to claim manually‍

Alternatively, you can use a spreadsheet to detail every trip, then pass this information to your accountant who will typically tell you how much you can pay yourself back once they’ve done your accounts. 

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5. Remember Other Related Expenses

While on a business-related journey, there might be additional costs like parking, tolls, food, or even accommodation. As long as you're on a business-related journey to a temporary location, these costs can typically be expensed through the company. 

Unlike the running costs of your vehicle, you can pay for these directly from the business account. If you do mistakenly pay for business expenses through your personal card, you should still claim this back through the business by adding a personal expense. 

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Conclusion

For freelancers, contractors, and limited company owners, the road is often an extension of the workplace. Whether you're in the saddle, or behind the steering wheel, understanding the tax benefits of your journeys is essential.

Mighty makes tracking and expensing business mileage efficient and straightforward, ensuring compliance and maximising benefits. Take control of your travel expenses with the intuitive tools and expert team at Mighty.