Your own car, fifty five pence a mile, and the money most owners leave on the road

Our view is simple. If you drive your own car for the business, the mileage claim is the first thing to get right, before any conversation about salary and dividends, because it is money you have already spent on the car and the company can hand it back with nothing taken off. The rate has just risen for the first time in fifteen years, it has been backdated, and almost every owner manager we meet is still paying themselves the old figure or nothing at all.

What can the company pay me for my own car

A fixed amount for each business mile you drive in a vehicle you own. At or below the approved rate there is no income tax, no National Insurance, no P11D and nothing to report, and the company deducts every penny from its profits. The rate is meant to cover fuel, insurance, servicing, repairs, the MOT, road tax and the car losing value, which is why it is generous for a small efficient car.

Sole traders and partners have the same car and van figures under the name simplified expenses, deducted against profits instead of the actual running costs of the car.

Why fifty five pence beats a dividend

Because it is one of very few ways money leaves a limited company and arrives in the owner’s pocket whole. Salary carries income tax and National Insurance on both sides. A dividend above the £500 allowance carries dividend tax at ten point seven five, thirty five point seven five or thirty nine point three five percent. A mileage payment at the approved rate carries nothing.

The company is indifferent before tax, it has paid £4,400 either way, but it is not indifferent after tax. The mileage is a deductible expense, worth £836 of Corporation Tax relief at the nineteen percent small profits rate. A dividend is paid out of profits that have already been taxed.

The worked example on the sheet

Take a director with a one point six litre petrol car who does eight thousand business miles in the year to 5 April 2027, carries a colleague on two thousand of them, and runs a VAT registered company paying the small profits rate.

Two of those lines are the ones nobody tells you about. The passenger line is five pence a mile for each colleague carried. The VAT line comes from HMRC’s advisory fuel rates, published every quarter by engine size, and it needs fuel receipts from the director covering at least £1,360 of fuel bought in the period, because the receipts are the evidence for the VAT and nothing else.

The four dates that put money back in your account

The backdating is the part most companies have missed. A company that moved to fifty five pence in June still owes the difference on every mile before the day it changed, and a company that never changed owes ten pence on every business mile this year. The payment is a reimbursement at the approved rate, so it goes through as a tax free expense, not through PAYE. A company that paid more than forty five pence between 6 April and 21 May, before the rise was announced, taxed an excess that no longer exists and can re run those months to refund it.

What people get wrong or forget to claim

The fuel receipt that becomes pay. The rate already includes fuel. A director who puts the fuel for a personally owned car through the company and takes the mileage rate as well has been paid twice, and the fuel is taxed as earnings.

The ten thousand mile misreading. The step down to twenty five pence is an income tax rule. For National Insurance the qualifying amount is fifty five pence on every business mile, so a company that keeps paying fifty five pence past ten thousand miles reports the extra thirty pence as taxable pay but owes no National Insurance on it.

The employee paid thirty pence. Where the company pays less than the rate the employee can claim Mileage Allowance Relief on the gap, but the relief is twenty or forty percent of the gap, not the gap itself, with nothing for National Insurance. Paying the full rate puts the whole amount in the employee’s hand and the company deducts it.

The commute. Home to the office you work from every day is not business travel. Home to a client or a supplier is.

The sole trader who chose once. Simplified expenses are chosen per vehicle, a vehicle on the flat rate stays there for as long as the business uses it, and a vehicle that has already had capital allowances cannot move to the flat rate at all.

What we would do in your position

Every driver claims fifty five pence a mile, monthly, from a log on their phone, with the passenger line filled in. The back pay to 6 April 2026 goes in the next expenses run. Fuel receipts go in the same folder as the log and the VAT on the fuel element goes on every VAT return. The move to thirty five pence above ten thousand miles on 6 April 2027 is diarised now.

Stated as a rule, because it is one we apply. For anyone self employed there is one more line in it. The choice between the flat rate and actual costs is made in the first year a car is used, knowing it sticks.

How we help

For the businesses we look after we set up the mileage log, pay the approved rate and the back pay through the expenses run, put the VAT on the fuel element on every return and check the figures when the rates change each April and each quarter. If you would like us to work out what your company owes you for this year’s miles, book a free thirty minute call.

This article is general information, not personal advice, and tax rules change over time. For guidance on your own circumstances, get in touch.

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