I made a post here awhile ago in regards to keeping track of fuel expenses.
However after trying to get my head around how to document it, I am still struggling.
At present I have created a supplier named ‘Fuel’ and tagged my fuel expenses to this. So far I have Prepayments: £125.02 but I am yet to raise any invoices as I am unsure how I am to differentiate between business and personal miles being a sole trader. I keep a vehicle log book which helps me do this, but inputting it seems the challenge.
I could raise an invoice for all the miles, let’s say I have 100 business miles at 45p each. E.g. £45. The rest personal miles, what do I do with the remaining balance? Let’s also say I do 300 miles 45p per mile (according to gov website), but I’ve spent £135 technically according to the gov but only £125 on fuel itself.
Confusing times…
Accountant in my area wanted to charge me a ££££ for help.
The 45p thing is instead of claiming general running costs. Basically if you use your own car for business and you’re trading below the VAT threshold then you have two choices. You can either
keep track of the business miles you do and claim the allowed rate (45p/mile for the first 10,000 miles and 25p thereafter) and nothing else, or
track all your business and private mileage, then claim the business proportion of all the running costs, plus capital allowances on the business proportion of the car’s value.
If you’re above the VAT threshold you have to use method 2 (full costs) unless you were already using the mileage allowance method on that vehicle before you hit the threshold.
For the mileage allowance method your actual vehicle expenses aren’t considered purchases, so just tag them as transfers to drawings - you’re effectively paying for “personal” purchases using business funds. Then when you work out the mileage allowance claim you “pay” that from the same drawings account.
For the full cost method I’d just enter all the receipts for anything car related as purchases in QuickFile for the full amount, then make a journal adjustment at year end based on the business/private mileage ratio.
If you’re VAT registered then it’s more complex and in that case I would consult an accountant (I’m not one!).
Yeah we aren’t VAT registered - A long way from that. Turnover isn’t likely to exceed £10k (but here’s to hoping!).
I’m abit confused about your explanation for method 1. So I log them as drawings into my proprietor drawings account.
Let’s use the example, I did 100 miles one week on £20 fuel. I did 60 business and 40 personal miles. How would I represent this? Based on the 45p, I assume this would be £9 which I could claim back. How do I show it as a claim back?
Yes, when you use the mileage allowance method the actual expenses you incur to run your car (fuel, servicing, etc.) are not relevant to the business - you can think of them as “personal” rather than “business” costs, and when you pay for personal purchases using business funds as a sole trader, you account for it as a transfer to drawings, as you’ve effectively drawn money out of the business for personal use. The only thing you record in the business accounts as a deductible expense is the 45p/25p per mile for the number of business miles you have done.
So in your example the “expense” for the purposes of the business accounts is 45p per mile times 60 miles = £27, which you would log as a purchase against a dummy supplier as per the QuickFile knowledge base guide. Since there’s no money actually going out of the current account for this “expense” you mark it as paid from the proprietor drawings account - it’s not really a purchase in the usual sense, the point is that the mileage allowance you’ve recorded will be deducted from the net profit of the business, which reduces the amount of income tax and NI you have to pay at tax return time.
You can take the extra £7 that the business “owes” you if you like (the £27 mileage allowance minus the £20 you’ve already spent on fuel), tagging it as another transfer to drawings, but you don’t have to and it doesn’t affect the tax calculations whether you do or not.
Re. Allocation of fuel expenses. I agree with the post suggesting full cost expenses,then allocating a %to private and business.For years I have used this system,instead of actual mileage and Importantly HMRC have accepted this method without question. Another advantage is that you can alter the % accordingly to correspond to changes in use,as long as you make it clear in your notes.
How detailed a log do you have to keep of your business and private mileage to substantiate the % split? Is it enough to record business miles plus the total vehicle mileage at year start and end (and assume anything not business is private by definition) or do you have to keep a full log of every private trip as well as business ones (that’s what I’d gathered from this article)?
We currently track mileage through a vehicle mileage book we got off eBay, found here.
We were advised to use this by a relative who is a director for a large auto business in the UK. HMRC approve the use of the book as long as it is filled in correctly.