MilometryMileage rate or actual costs: how the two compare
Self-employed drivers get a choice, and it is effectively permanent for that vehicle. How the two compare depends on what it cost and how far it goes.
Allgemeine Information, keine Beratung. Als allgemeine Information verfasst und nach unserem Wissen korrekt am 27. September 2026. Steuerregeln ändern sich, und wie sie gelten, hängt von deinen Umständen ab. Dies ist keine Steuer-, Rechts- oder Finanzberatung: Frag eine Steuerberaterin, einen Steuerberater oder das Finanzamt, bevor du dich darauf verlässt.
If you are self-employed (a sole trader, or a partnership of individuals), you can deduct the cost of business driving from your profit in one of two ways. Either way it is a deduction, so what it saves is your Income Tax and National Insurance rate on it, not the full amount. The difference between them can be significant, and the choice is stickier than many people realise. Limited companies cannot use the flat rate.
The two options
Simplified expenses (the mileage rate). Deduct a flat 55p a mile for the first 10,000 business miles in the accounting period and 25p after that (the rates for 2026-27; it was 45p up to 2025-26, and HMRC's guidance explains how to handle accounts that straddle the change). The 10,000 miles count across all the business's cars and vans that use the flat rate. That figure is meant to cover everything: fuel, insurance, servicing, repairs, road tax, depreciation. You deduct nothing else for buying or running the vehicle (parking, tolls and congestion charges on business journeys are still allowed on top).
Actual costs. Work out what the vehicle really costs you across the year, then deduct the business proportion of it. You also get relief for the business share of the purchase price: capital allowances, or for a van under the cash basis (the default since 2024-25) a deduction for its cost. This means keeping receipts for everything and knowing your business-use percentage.
The rule that catches people
Once you have used the mileage rate for a particular vehicle, you must keep using it for that vehicle for as long as you use it in the business. You cannot use the flat rate for three years and then switch to actual costs when the car needs a new gearbox.
It also runs the other way: if you claim capital allowances on a vehicle, or deduct a van's purchase cost under the cash basis, the mileage rate is closed for that vehicle. HMRC's guidance is that you can only change method when the vehicle is replaced.
So the decision is made once, early, and lives with the car.
Rough patterns
These are general tendencies, not a recommendation for any particular business:
| Situation | Tends to favour |
|---|---|
| Cheap or already-owned car, high business mileage | Mileage rate |
| Economical car, moderate mileage | Mileage rate |
| Expensive vehicle, high business-use percentage | Actual costs |
| Thirsty van working hard | Actual costs |
| Low business mileage, expensive car | Actual costs |
| You would rather not keep receipts | Mileage rate |
When each tends to come out ahead
The mileage rate tends to win when:
- The car was cheap, or was already yours
- You drive a lot of business miles in it
- It is economical, so 55p comfortably exceeds what the mile actually cost
- You would rather not keep every receipt
Actual costs tend to win when:
- The vehicle was expensive, so the capital allowances are substantial
- Business use is a high proportion of total use
- Running costs are genuinely high: a van, something thirsty, something old and needy
- Your annual business mileage is modest, so the flat rate does not add up to much
A rough comparison: estimate the business miles for the year, multiply by the rate, and compare that with the real annual running costs times the business-use percentage, plus the business share of the purchase relief. Where the two are close, the flat rate has the advantage of being simpler to administer. Because the choice is locked in for the vehicle, the comparison that matters covers the vehicle's whole expected life in the business, including what it sells for at the end.
The two methods side by side
| Mileage rate | Actual costs | |
|---|---|---|
| What you claim | 55p / 25p a mile | Business share of real costs |
| Capital allowances | No | Yes, on the purchase |
| Receipts needed | Mileage log only | Everything, all year |
| Business-use % needed | No | Yes, and defensible |
| Can you switch later? | No, not for that vehicle | No, not for that vehicle |
| Best for | Cheap, economical, high mileage | Expensive, thirsty, high business use |
A worked comparison
A van bought for £18,000, doing 8,000 business miles out of 12,000 total (67% business), running costs of £4,200 a year, kept four years and sold for £7,000:
| Mileage rate | Actual costs | |
|---|---|---|
| Fuel, servicing, tyres, insurance, tax (£4,200 × 67%), each year | n/a | £2,814 |
| Purchase relief in year one (£18,000 × 67%, through the Annual Investment Allowance, or a cash basis deduction) | n/a | £12,060 |
| 8,000 miles at 55p, each year | £4,400 | n/a |
| Year one deduction | £4,400 | £14,874 |
| Years two to four, each | £4,400 | £2,814 |
| Sale proceeds brought back into profit (£7,000 × 67%) | n/a | −£4,690 |
| Four years in total | £17,600 | £18,626 |
In this illustration actual costs front-load the relief into year one and the mileage rate is steady, and over the van's life the totals end up close. Change the price, the running costs, the mileage or the resale value and the answer moves. These are deductions from profit, not cash: what each saves is your tax rate on it.
Figures are illustrative. How the purchase is relieved depends on the vehicle (cars do not get the Annual Investment Allowance) and on whether you use the cash basis, which is why this comparison is worth checking against your own figures before committing.
You still need the mileage log either way
This is easy to overlook. Choosing actual costs does not free you from recording journeys. It makes the record more important, because your business-use percentage has to be justified from somewhere. "About 60%" is not a figure HMRC can check, and neither can you.
Whichever route you take, the underlying evidence is the same: date, from, to, purpose, distance. That is what Milometry records, and why the log is worth keeping before you have decided which method you are using.
Sources
- Expenses if you're self-employed: car, van and travel expenses (HMRC)
- Simplified expenses checker (HMRC)
- Simplified expenses if you're self-employed: vehicles (HMRC)
- BIM75005: simplified expenses, expenditure on motor vehicles (HMRC)
- Income Tax (Trading and Other Income) Act 2005, section 94F (legislation.gov.uk)
- Annual Investment Allowance (HMRC)
- Capital allowances on business cars (HMRC)
- Cash basis (HMRC)
- Income Tax (Trading and Other Income) Act 2005, section 94D: expenditure on vehicles (legislation.gov.uk)
- Income Tax (Trading and Other Income) Act 2005, section 94E: excluded vehicles (legislation.gov.uk)
- Increasing mileage rates (HMRC policy paper)
- Travel, mileage and fuel rates and allowances (HMRC)
- How long to keep your records if you're self-employed (HMRC)
General information for UK drivers, not tax advice. The choice between methods has long-term consequences: worth an hour of an accountant's time before you commit.
