Actual Cost Method vs Mileage Allowance for the Self-Employed (2026/27)
Claiming per business mile is simpler, but claiming actual running costs plus capital allowances can be worth more for some vehicles. A worked 2026/27 comparison for sole traders.
The two methods, side by side
| Feature | Mileage method | Actual cost method |
|---|---|---|
| What's claimed | Flat rate per business mile | Genuine running costs + capital allowances |
| Record-keeping | Mileage log (dates, purpose, miles) | Full receipts for fuel, insurance, servicing, repairs |
| Can switch methods later for the same vehicle? | No β locked in once chosen | N/A |
| Best suited to | Efficient, lower-cost vehicles; high mileage | Expensive vehicles; high genuine running costs |
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
Open Self-Employed Tax calculatorHow the mileage method works
Under the simplified mileage method, a sole trader claims a flat rate per business mile driven, which is intended to cover fuel, insurance, servicing, depreciation and general wear in one figure β no need to track actual receipts for these items, just accurate mileage records showing the date, purpose and distance of each business journey. Check gov.uk for the current Approved Mileage Allowance Payments (AMAP) rates, since these are periodically reviewed and differ for cars/vans versus motorcycles and bicycles, and typically drop after the first 10,000 business miles in a tax year.
MPG Calculator
Calculate your car's fuel consumption in MPG or litres per 100km.
Open MPG calculatorHow the actual cost method works
Under actual costs, a sole trader claims the genuine running costs of the vehicle β fuel, insurance, servicing, repairs, MOT β apportioned between business and private use based on actual mileage split, plus capital allowances on the vehicle's purchase price (again apportioned for private use), which lets the cost of the vehicle itself be relieved against tax over time, generally faster in the early years for many vehicle types.
Car Running Cost Calculator
Calculate the total annual cost of running a car including fuel, insurance, tax and servicing.
Open Car Running Cost calculatorWhy the choice can't be changed mid-vehicle
HMRC's rule that the chosen method is fixed for the life of that specific vehicle in the business (once first used) means the decision should be made carefully at the point the vehicle is first used for business, ideally by running both calculations for a representative year before committing β switching later isn't simply a matter of choosing the better option each year.
A rough guide to which tends to suit whom
- High-mileage drivers in an efficient, lower-cost car β the flat mileage rate often works out ahead of what the vehicle actually costs to run per mile, making the simplified method attractive.
- Owners of an expensive vehicle with high genuine running costs β particularly in the early years, when capital allowances are largest β actual costs can produce a bigger deduction, though at the cost of considerably more record-keeping.
- Those wanting simplicity above all β the mileage method removes the need to track and apportion every fuel receipt and repair bill, a genuine administrative saving even if the tax outcome is similar.
Sources
- gov.uk: Simplified expenses β vehicles
- gov.uk: Capital allowances for cars
- gov.uk: Self-employed allowable expenses
Frequently asked questions
What are the HMRC simplified mileage rates for 2026/27?
Check gov.uk for the current Approved Mileage Allowance Payments (AMAP) rates, as they're periodically reviewed β historically the rate has been higher for the first 10,000 business miles in a tax year and lower per mile after that threshold, for cars and vans.
Can a sole trader switch between the mileage method and actual costs each year?
No β once the mileage method is chosen for a particular vehicle, it generally has to be used for that vehicle for as long as it's used in the business; switching between methods for the same vehicle isn't permitted, though a different method can be chosen for a newly acquired vehicle.
Is the mileage method available to limited companies?
The simplified mileage rates are generally for sole traders and partners using their own vehicle for business, and for employees claiming mileage from an employer β a limited company claiming costs for a company-owned vehicle typically uses actual costs and capital allowances instead.
Try the calculators
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
MPG Calculator
Calculate your car's fuel consumption in MPG or litres per 100km.
Car Running Cost Calculator
Calculate the total annual cost of running a car including fuel, insurance, tax and servicing.
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A co-working day pass or membership is a straightforward expense; a home office claim needs an apportionment. What each actually costs after tax relief for the self-employed in 2026/27.
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A serviced office desk has a visible monthly bill; a home office has hidden costs and a specific tax-deductible allowance. A worked 2026/27 comparison for the self-employed.