Business Mileage and Fuel Claims Explained by Bedford Accountants

Mileage is one of the simplest tax deductions available yet it is also one of the most commonly mismanaged. HMRC sets clear rules but most small business owners, directors and self employed individuals do not fully understand the difference between claiming mileage, claiming fuel, claiming running costs or switching between methods. The result is lost tax savings, messy bookkeeping or unexpected tax charges later.

As Bedford accountants we see this constantly. Some clients overclaim without meaning to. Others underclaim and lose money. Many do both. This guide breaks everything down in plain English so you know exactly how to handle mileage and fuel for your situation.

What Mileage and Fuel Claims Actually Are

Business mileage and fuel claims allow you to reduce your taxable profit by claiming the cost of using your vehicle for business. This includes:

• Journeys to clients
• Driving between work locations
• Business errands
• Bank trips
• Visits to suppliers or sites

It does not include commuting from home to your regular workplace.

Mileage claims can be made by:

• Self employed individuals
• Limited company directors
• Employees using their own vehicle

Each group has slightly different rules which is why confusion is so common.

The Two HMRC Approved Claim Methods

There are only two approved ways to claim:

• The simplified mileage method
• The actual cost method

Choosing the right one can save you hundreds every year.

Method 1: The Simplified Mileage Method

You claim a fixed amount per mile for business travel. The official HMRC rates are:

• 45p per mile for the first 10,000 miles
• 25p per mile after 10,000

These rates include everything such as fuel, wear and tear, insurance and repairs.

Best suited to:

• Self employed people
• Employees using their own cars
• Limited company directors using a personal vehicle

Method 2: The Actual Cost Method

Instead of claiming per mile you claim a percentage of your vehicle’s real running costs. This can include:

• Fuel
• Insurance
• MOT
• Servicing
• Repairs
• Tyres
• Finance interest
• Breakdown cover
• Parking (business only)

You track:

• Total mileage for the year
• Business mileage
• Personal mileage

You then apply the business percentage to your full annual vehicle costs.

Works best for:

• Vans
• High mileage business vehicles
• Vehicles with very high running costs

Directors must be cautious because company cars can trigger benefit in kind charges.

Can You Switch Methods?

• Self employed: You cannot switch back to mileage once you choose actual cost for a specific vehicle.
• Directors: You can choose either method because the car is personally owned.

Most directors choose mileage because it avoids benefit in kind charges.

Mileage Claims Inside a Limited Company

If you use your personal car for business the company can reimburse you tax free at:

• 45p per mile up to 10,000 miles
• 25p per mile after 10,000

This creates:

• No personal tax
• A corporation tax deduction for the company

If the company pays for your fuel directly you risk a fuel benefit charge which is usually far more expensive than the fuel itself.

We always tell clients to keep fuel personal and claim mileage. It is cleaner and avoids all issues.

Common Mistakes We See in Bedford Every Year

We see the following problems repeatedly:

• Overclaiming mileage by estimating journeys
• Claiming fuel receipts and mileage at the same time
• Directors putting fuel through the business which triggers a fuel benefit
• No mileage log kept at all
• Claiming commuting as business travel
• Switching claim methods incorrectly
• Forgetting that the simplified mileage rate already includes repairs, insurance and servicing

These mistakes create penalties or mean you lose money.

How We Help Clients Manage Mileage Properly

When we handle mileage for clients we:

• Choose the method that gives the lowest tax
• Set up a simple mileage log that the client updates monthly
• Remove incorrect fuel claims
• Explain when a company vehicle is beneficial and when it is not
• Ensure the Director’s Loan Account is not affected by vehicle costs
• Keep records HMRC will accept without question

Clients often say it is the first time they have understood mileage clearly.

How Mileage and Fuel Claims Reduce Tax

Mileage reduces:

• Corporation tax for companies
• Income tax for sole traders
• National Insurance in many cases

Actual fuel claims reduce tax proportionally based on your business percentage. However benefit in kind rules can wipe out the benefit if it is done incorrectly.

Real Numbers: How Much You Save With Mileage

If a director drives 6,000 business miles a year:

• 6,000 miles at 45p = £2,700 reimbursement
• Corporation tax saved at 25 percent = £675

The director receives £2,700 tax free and the company saves £675.
Total benefit: £3,375

Mileage is one of the most tax efficient allowances available.

The Bottom Line for Bedford Businesses

Mileage and fuel claims only become complicated when nobody explains them properly. Once you understand the rules and keep clean records you can save significant tax every year without any risk or stress. If your accountant has never explained which method suits your vehicle best you are almost certainly missing out on money.