Two Methods, One Choice
In a previous post I covered the basics: fuel and mileage for business journeys are allowable, and you pick one of two methods to claim it. This time I want to dig into what each method actually covers, and how to work out which one suits you.
You can only use one method per vehicle, and once you've made the choice for that vehicle, you're stuck with it for as long as you own it. So it's worth getting right from the start.
What the Mileage Rate Covers
The mileage rate is a flat amount per business mile, set by HMRC. As of 6 April 2026, that's 55p per mile for the first 10,000 business miles in the tax year, then 25p per mile after that.
That flat rate isn't just fuel, it's meant to cover everything: fuel, servicing, repairs, insurance, and general wear and tear on the vehicle. It's a bundled figure, so if you use this method, you can't also claim any of those costs separately.
Dan does 8,000 business miles this year in his van. Under the mileage method, that's 8,000 × 55p, £4,400 claimed, and that's the whole claim. No separate insurance or servicing on top.
What Actual Costs Covers
The actual costs method means claiming the real, evidenced cost of running the vehicle, based on the split between business and personal use. That includes:
- Fuel
- Servicing and repairs
- Insurance
- Breakdown cover
- A yearly allowance for the van itself, since HMRC lets you claim back what you paid for it a bit at a time over several tax returns
You add up the total cost across the year, work out what percentage of the vehicle's use was business rather than personal, and claim that percentage. This needs proper records, receipts for every cost, and a mileage log to prove the business-use split.
Mia's van costs £6,000 a year to run in total (fuel, servicing, insurance). Her mileage log shows 75% of her mileage was business. She can claim 75% of £6,000, £4,500, plus a share of what she paid for the van itself.
When Mileage Tends to Win
- You drive a lower-value vehicle
- It's reliable, without a history of expensive repairs
- Your annual mileage is modest
- You want the simplest possible record-keeping, just a mileage log
- You don't want to keep every fuel and repair receipt
When Actual Costs Tends to Win
- You drive a newer or more expensive vehicle
- It's older and prone to repairs, so your running costs are unpredictable
- Your running costs are high (heavy van, poor fuel economy, high insurance)
- Business use makes up a large share of total mileage
- You're already keeping detailed records anyway
As a rough guide, the more expensive the vehicle, the higher your business-use percentage, and the less predictable your repair bills, the more likely actual costs comes out ahead. For a modest, reliable runaround, the mileage rate is usually both simpler and comparable in value.
The Catch: You Can't Switch Vehicle-by-Vehicle
Once you've claimed actual costs for a vehicle, you can't switch to the mileage rate for that same vehicle later on, you're locked in for as long as you own it. If you're self-employed and choose mileage for a vehicle when it's new to the business, you can generally keep using mileage for that vehicle going forward.
This is exactly the kind of decision worth talking through before you start claiming either way, rather than partway through the tax year.
A Quick Side-by-Side
| Mileage Rate | Actual Costs |
|---|---|
| Flat 55p/25p per mile | Real costs × business-use % |
| One log to keep | Log plus every receipt |
| Locked in per vehicle | Locked in per vehicle |
| Best for lower-cost, lower-mileage vehicles | Best for higher-cost, higher-use vehicles |
A Note on the New 55p Rate
The rise from 45p to 55p was announced on 21 May 2026 but backdated to 6 April 2026. If you claimed mileage between those two dates, you can still claim the full 55p for those miles on your return, it isn't limited to what was in place at the time you actually drove them.
Whichever You Pick, Commit
Switching your mind halfway through the year, wishing you'd kept receipts instead of a mileage log (or vice versa), is the financial equivalent of starting a job without a plan and hoping it sorts itself out on the way. Pick a method, stick with it, and let future you thank present you at tax return time.