Companies and cars – business mileage

Paula Veysey Smith • 6 March 2016

The downside is that you now have to record your business miles.  I have a book in the car and record all my business journeys by noting the starting and finishing miles on the clock; yes, I know – I need to get out more! For those less in need of a life, google is a wonderful thing.  You can plot your business journeys and it will tell you how many miles are involved.  See, there’s no excuse for not measuring your business miles and claim your full 45 pence per mile!

Fabulous, just about to change into sixth gear and pull onto the overtaking lane. But then the brakes are applied when someone mentions that three lettered acronym . . . . VAT!!!  Claiming this 45 pence per mile is all very well but what if you are VAT registered, can you reclaim the VAT?  The good news is the answer is yes, but this is where it gets a bit complicated so it may not be time to put cruise control on just yet.

The portion of the 45/25 pence mileage rate that is for fuel is deemed to be those  HMRC published advisory fuel rates  on which you can claim back VAT. That’s a good start but how does that work?

So, lets take an example – if the car we owned had a 1400cc petrol engine, the fuel portion of the 45/25 mileage rate is 13 pence per mile (December 2014):

13 pence per mile represents 120% (100% plus 20% VAT) – no falling asleep at the wheel now!

Therefore 20/120 multiplied by the 13p is 2.2 pence per mile. So for each mile that you incur for business, you can claim back 2.2p in VAT.

There is one caveat, which is that you will need to show HMRC on request VAT receipts that have enough VAT on them to cover the claim. I know that sounds pedantic but considering all service stations are VAT registered it really doesn’t take much to ask for a VAT receipt when paying for your fuel.

So if 1000 miles is claimed in the VAT period, the total value on the receipts must be as follows:

The VAT reclaim will be 2.2p x 1000 = £22 and the fuel receipts should total £147.

With the right procedures in place it is possible to take every tax advantage of using your own car for business, even when that business is VAT registered.  However, if these calculations have sent you into a near state of road rage there is one more option to consider – leasing! Could leasing a vehicle provide hassle free business miles or is it going to be another call out to the AA?!

So, in my last article in this series we’ll take a pit stop and look at the whole issue of leasing, will it lead you onto the motorway of hassle free business motoring or just give you another flat tyre . . .

MTD for Self-Assessment – is it time to become a Ltd Company?

by Paula Veysey-Smith • 16 September 2025
With the horizon of Making Tax Digital (MTD) for self-assessment very much on the landscape many small businesses are considering the benefits of incorporating a Limited Company to avoid the rigours of quarterly reporting and the new requirements of six returns being needed every year. There is much to consider when contemplating forming a limited company so let’s have a look at what this means and the benefits and disadvantages of doing so. Firstly, to understand what Making Taxing Digital means for sole traders please read our previous article at: https://www.mpoweraccounting.co.uk/how-will-i-be-affected-by-making-tax-digital-for-income-tax-mtd-for-itsa Is it easy to transfer my business to a Limited Company? You will need to firstly set up the Limited Company at Companies House. Although this can easily be done online you will need to have made decisions on the following: What’s my company going to be called? How much share capital should it have? Who are the Directors and Owners? What registered address should I use? What bank account should I set up for the new Company? How do I transfer my current business to the Limited Company? You do need to properly transfer the operations and assets to the newly formed company, you can’t just start trading through it. For this you do need professional advice to ensure it is done properly and doesn’t breach any HMRC guidelines, for example, how you value the business. Another important consideration is having to novate or assign customer, supplier and other contracts (eg, landlord) into the new business. Are Limited Companies affected by MTD? Limited Companies are not affected by MTD ITSA because they don’t file a self-Assessment return for trading profits. Instead, they file: A Corporation Tax return (CT600) once a year to HMRC. Statutory accounts once a year at Companies House. Confirmation Statement which again is filed annually at Companies House. A Personal self-assessment tax return for dividends/salary will still need to be filed if you’re a director-shareholder. This is currently outside the scope of MTD for self-assessments. If the company is VAT registered these do need to be filed quarterly under the VAT MTD which has been in place for a number of years now. What are the advantages of incorporating to avoid MTD for self-assessments? No quarterly MTD submissions unless VAT registered. Potential tax planning opportunities, e.g. mixing salary and dividends. Limited liability protection. Perception of a more credible business. What are the disadvantages of becoming a Limited Company? There are additional costs involved with running a Limited Company as the annual returns are more complicated and will require a professional to complete them properly. A Limited Company is a separate tax entity so the money in it isn’t automatically yours — you need to extract it as salary, dividend, expenses or loan. If profits are higher than £50 000 the corporation tax rate is 25% but remains at 19% below that threshold. There is marginal relief on the higher tax rate until profits are £250 000. MTD for Corporation Tax is expected eventually, so incorporation may only delay digital reporting. What are the Alternatives to incorporation? If your income will stay below the £30,000 threshold by 2027, you may never need to comply with MTD ITSA. Even if above the threshold, using cloud accounting software, e.g. Xero , QuickBooks , FreeAgent makes MTD submissions fairly painless — so incorporating purely to avoid MTD may not be the best reason. Incorporating to avoid MTD for self-assessment may seem like a good option it does come with its own complexities. If your main driver is to just avoid MTD it may not be worth it BUT if you’re already considering incorporating then now is a certainly a good time to do it. There are many positive benefits of being a Limited Company which do outweigh the additional costs especially if you are looking to grow and develop your business. Do contact us if you have any concerns about MTD for self-assessment or you’d like to discuss the merits of incorporating as we are specialists in both fields.
White Guy Fawkes mask with a smile, black eyebrows, and pink cheeks against a black background.

Identity Verification at Companies House – why is this being introduced and what do I need to do?

by Paula Veysey-Smith • 26 August 2025
Have you ever been a victim of identity fraud? It’s very unpleasant, can cause financial hardship and always causes distress. My own son himself found out that he had been appointed a Director of a bogus Limited Company with no knowledge! I have also included a guide further down as to what to do if you find yourself in this unfortunately situation.

Xero Price Increases 1 st September 2025 – how much more will I be charged?

by Paula Veysey-Smith • 10 August 2025
Now you can be excused if you’ve missed the announcement of the latest price increases by Xero. Apart from a rather low key “Pricing Update” notice and customer emails there has been little else published on the internet explaining the latest round of increases in the Xero Plans. So, here’s your opportunity to understand how Xero’s recent update will impact the plan you are on.
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What is HMRC’s Payment on Account System for Self-Assessment and how does it affect me?

by Paula Veysey-Smith • 9 July 2025
With many tax payers facing yet another payment to the HMRC on the 31st July let’s answer some frequently asked questions about the Payments on Account System. When was this system first introduced? The Payments on Account system was introduced in the 1996–97 tax year , as part of the Self-Assessment overhaul. Before then, HMRC had a fragmented and less predictable system for collecting income tax from self-employed individuals and others outside the PAYE system. It was introduced to ensure that taxpayers pay tax closer to when they earn their income , rather than facing a large lump sum payment long after the end of the tax year. Why did HMRC introduce Payments on Account? There are three key reasons why HMRC introduced this system: Cash flow for HMRC : This undoubtably is a driving reason for Payments on Account as it spreads the inflow of tax revenue more evenly throughout the year rather than relying on one big payment annually after a tax demand was sent to the tax payer. Encourages prompt payment : Tax is collected in advance (based on the prior year’s bill), reducing the risk of default or late payments. Helps tax-payers budget : Although first going into the Payment on Account system is painful as your tax bill, and half of it again, need to be paid on 31st January. Once in though, it does avoid the shock of a large single tax bill by splitting the liability into two smaller payments. So how does the Payments on Account system work? Who Needs to Make Payments on Account? You’ll need to make payments on account if your tax bill is more than £1,000 and less than 80% of your tax is collected at source (e.g., via PAYE). When Are Payments on Account Due? There are two payments each year: 31 January – First payment on account for the current tax year 31 July – Second payment on account for the current tax year Each is 50% of your previous year’s tax bill (excluding Class 2 NICs and student loan repayments). Example: Let’s say your tax bill for the 2023/24 tax year is £6,000 . On 31 January 2025 : You pay the £6,000 balance for 2023/24 Plus a £3,000 payment on account for 2024/25 (50% of £6,000) On 31 July 2025 : You pay another £3,000 as the second payment on account for 2024/25 So by July 2025, you've prepaid £6,000 towards your 2024/25 tax bill. What Happens When You File Your Next Tax Return? When you submit your 2024/25 return: If the actual tax bill is £7,000 , you’ve already paid £6,000 , so you owe £1,000 by 31 January 2026. If it’s only £5,000 , you’ve overpaid and can get a £1,000 refund or offset it against future payments. If the bill is £7,000 your tax payment will be: on 31st January 26 £1,000 balance on the 2024/25 return bill AND half of the £7,000 (£3 500) balancing payment so £4,500 in total. £3,500 balancing payment on the 31st July 26. Can You Reduce Payments on Account? Yes you can. If you expect your income to fall, you can apply to reduce them through your HMRC online account or on the paper form SA303. But if you reduce them too much, HMRC may charge interest on the underpaid amount. Will Making Tax Digital for Self-assessment change the Payments on Account System? The short answer is No! The longer answer is watch this space!! Many of us professionals believe that with quarterly reporting, quarterly paying will soon follow! For more information on Making Tax Digital for Self-assessment please see our article at: https://www.mpoweraccounting.co.uk/how-will-i-be-affected-by-making-tax-digital-for-income-tax-mtd-for-itsa The Payment on Account system often causes much confusion with self-assessment tax payers. At MPower Accounting we are used to helping our clients understand when payments need to be made and how they have been calculated. As an added service we will always send a payment reminder to clients early in July so they are not caught out. We are also delighted to work with clients who want to complete their self-assessment tax returns early to determine if they are able to reduce the July Payment on Account. Do contact us if you’d like help with Payments on Account and anything to do with your self-assessment
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