Vehicle Expenses for Sole Traders: Actual Costs vs Mileage Allowance

Using a vehicle for your business is one of the most significant expenses many sole traders incur, and the tax treatment depends almost entirely on which method you choose to record those costs. Getting this decision right — or wrong — can make a substantial difference to your tax bill over several years.

This guide explains both methods, when each is preferable, and the capital allowance rules that make the actual cost method more complex but sometimes more valuable.

The two methods

Every self-employed person using a vehicle for business must choose one of two methods:

The mileage allowance (AMAP) method — claim a fixed HMRC rate per business mile driven, regardless of actual costs
The actual cost method — claim the real, proportioned cost of running the vehicle

The critical rule: once you start with one method for a vehicle, you must continue with it for that vehicle's entire business use. You cannot switch between methods mid-life. If you buy a new vehicle, you can choose afresh.

The AMAP method: simplicity with a ceiling

The Approved Mileage Allowance Payment rates for 2026/27 are 45p per mile for the first 10,000 business miles in a car or van, and 25p above that threshold. (Motorcycles: 24p; bicycles: 20p, regardless of mileage.)

This method is simple — keep a mileage log, multiply by the rate, claim the amount. No tracking of fuel receipts, insurance premiums, servicing bills, or depreciation calculations.

The AMAP rate is generous at moderate mileage levels. At 45p per mile, 8,000 business miles generates a £3,600 deduction — which at a 26% combined income tax and Class 4 NI rate saves a basic rate taxpayer £936 per year. At this mileage, the AMAP rate typically exceeds actual running costs for modern, fuel-efficient vehicles.

The AMAP method becomes less competitive above 10,000 business miles, where the rate drops to 25p. At high mileage, actual costs may yield a substantially larger deduction, particularly for vehicles with higher running costs.

Use the HMRC Mileage Calculator to calculate your AMAP deduction.

The actual cost method: more complex, sometimes more valuable

Under the actual cost method, you claim a proportion of all vehicle running costs equal to the business use percentage. The business use percentage is calculated as:

Business miles ÷ Total miles in the year

If you drive 20,000 total miles and 12,000 are business miles, your business use proportion is 60%.

Running costs you can claim in proportion:

Fuel
Insurance
Road tax (Vehicle Excise Duty)
Servicing, repairs, and MOT
Tyres
Breakdown cover (AA/RAC)
Parking costs for business journeys (in full, if incurred on a business trip)

Costs you cannot claim:

Parking fines and fixed penalty notices (never allowable)
Speeding fines and traffic penalties

The depreciation question: capital allowances

The biggest difference between the two methods is the treatment of the vehicle's purchase cost. Under AMAP, the purchase cost is not a separate claim — the mileage rate is designed to cover all costs including depreciation. Under the actual cost method, you claim the purchase cost of the vehicle separately through the capital allowances system.

Capital allowances for vehicles

When you purchase a business vehicle under the actual cost method, you don't deduct the full purchase price in the year of purchase (unless it's a zero-emission vehicle). Instead, you claim a percentage of the reducing balance each year through capital allowances.

Annual Investment Allowance and vehicles: Cars are specifically excluded from the Annual Investment Allowance. You cannot deduct the full purchase price in year one for a car. Vans (including dual-purpose vehicles) can qualify for the AIA.

Writing down allowances for cars (2026/27):

| CO2 emissions | Allowance pool | Writing down rate | |---|---|---| | 0g/km (zero emission) | Main pool | 18% per year | | 1–50g/km (low emission) | Main pool | 18% per year | | 51g/km and above | Special rate pool | 6% per year |

The writing down allowance is applied to the declining balance — meaning you claim 18% (or 6%) of the remaining pool value each year, producing diminishing claims over time.

First Year Allowance for zero-emission cars: Fully electric cars (0g/km CO2) purchased new qualify for a 100% First Year Allowance, allowing the full purchase cost to be deducted in the year of purchase — subject to the business use proportion.

Example — actual cost method for a diesel car:

Purchase price: £25,000
CO2 emissions: 130g/km (special rate pool, 6% WDA)
Business use: 60%
Year 1 writing down allowance: £25,000 × 6% × 60% = £900
Remaining pool after year 1: £25,000 − £1,500 (full allowance before business adjustment) = £23,500

Compare this to the AMAP method at 60% business use, 10,000 miles: £4,500 deduction. The mileage rate is clearly more generous at moderate mileage for a standard vehicle.

Example — actual cost method for a fully electric car:

Purchase price: £40,000
CO2 emissions: 0g/km (100% FYA)
Business use: 70%
Year 1 allowance: £40,000 × 100% × 70% = £28,000
Running costs (year): £2,000 electricity + £600 insurance + £400 service = £3,000 × 70% = £2,100

Total year 1 deduction: £30,100. This is transformative compared to the AMAP rate — 70% business use, 10,000 miles at 45p = £3,150 under AMAP.

When to choose each method

| Situation | Better method | |---|---| | Low to moderate mileage (under 10,000 miles), standard car | AMAP — simpler and competitive | | High mileage (15,000+ miles), high-cost vehicle | Actual costs — the 25p AMAP rate becomes uncompetitive | | New electric vehicle, high business use | Actual costs — 100% FYA is very valuable | | Purchasing a van | Actual costs — vans qualify for AIA (immediate 100% deduction) | | Simple record-keeping priority | AMAP — no receipts, no capital allowances calculations | | Mixed personal/business use, variable patterns | AMAP — business proportion changes don't require recalculation |

The private use adjustment

Under the actual cost method, you must keep records of total mileage (personal and business) to calculate the business proportion. Using a logbook or mileage app, record:

Total annual mileage
Business mileage (with journey-by-journey evidence)
Resulting business use percentage

HMRC expects the business proportion to be accurate and consistent. If your business use varies significantly year to year without explanation, it may attract scrutiny. The percentage is applied to both running costs and capital allowances.

Choosing at the start

Make the method choice deliberate when you first use a vehicle for business. Consider your expected mileage, vehicle type, and administrative capacity. For most sole traders driving a standard car for moderate business mileage, the AMAP method is the right choice. For those investing in an electric vehicle specifically for business, or driving very high mileage in an expensive vehicle, actual costs with capital allowances can be significantly better.

The Expenses Checker covers the full range of business expenses a sole trader can claim, including vehicles, equipment, and home office costs.