Business owner repaying cost of business miles to self for using privately owned car

May 26, 2011
Reaction score
I operate a sole-trader business and have used my privately owned car for business purposes. I am recording my business mileage and intend on making a payment to myself every few months. I need to record the payments in Quickbooks under my expense account 'owners car usage'. But I am unsure as to what the VAT rate should be.

So say the total mileage in my 1000 cc petrol car is 100 miles, how do I work out what I should charge myself and what the VAT should be?
Apr 28, 2011
Reaction score
As a sole trader, how you reclaim motor expenses depends on the level of your turnover when you first acquired the vehicle.

Method 1

If your turnover was under the VAT registration threshold when you acquired the vehicle (which assumes that you have voluntarily registered for VAT), then you could use the HM Revenue & Customs approved mileage rates. These are supposed to cover fuel costs, depreciation and other running costs. The rates are 45p/mile (40p/mile before 6 April 2011) for the first 10,000 business miles in a tax year and 25p/mile for any further business miles in that tax year. See HM Revenue & Customs helpsheet 222 for more details.

You can reclaim VAT on the fuel element of the mileage allowance. The fuel element is shown on the HM Revenue & Customs website (I can't post links yet but try googling 'fuel advisory rates'). In your example, 100 business miles since 6 April 2011 would mean that you could reclaim £45 (100 x 45p). The fuel element for a petrol 1000 cc car is currently 14p/mile, so £14 of the £45 would relate to fuel. VAT of £2.33 (£14 x 20/120) can be reclaimed on this, although you need to hold fuel receipts that show at least this amount of VAT.

You don't have to choose this method - you can still choose method 2 - although, for each vehicle, you have to be consistent.

Method 2

If you were over the VAT registration threshold when you acquired the vehicle, then you can't use the HM Revenue & Customs approved mileage rates. Instead, you work out the business percentage use of the vehicle for the year (by comparing business miles as a percentage of total miles) and claim this proportion of the motor costs that you've incurred. For example, if your business use was 25%, you could claim 25% of your fuel, repairs, insurance, and other motor costs. You should also be able to claim 25% of the VAT on any of these items, assuming that you have valid VAT invoices for them.

Note: if you operated through a limited company and used your personal vehicle, then the rules would be different. Method 2 would not be available. If you wanted to avoid any tax consequences, you would use the HM Revenue & Customs approved mileage allowances (Method 1), although you could set a higher mileage rate if you accepted the tax implications of doing so.


Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads