Simplified tax deductions were announced in the budget for accounting periods ending after 5 April 2013 in relation to profits taxable in 2013/14 for unincorporated businesses meaning self employed individuals and partnerships. However you should think carefully before opting to use the simplified deductions as once you do you can not revert to the old system of claiming actual costs.
You must keep a record of business mileage. A simple log of where and when you travelled and the mileage should satisfy HMRC. For cars and vans the tax-deductible amount is worked out at 45p per mile for the first 10,000 miles and 25p thereafter. For motorbikes, the rate is a straight 24p per mile.
The mileage deduction covers all the fuel and other running costs of the vehicle. Other specific journey costs such as tolls and parking are also tax deductible. You can’t however claim capital allowances on the vehicle, HMRC’s version of depreciation.
Where you use the mileage rate it is still necessary to record all motor expenses and claiming the mileage rate does not affect your right to reclaim the VAT on actual motor expenses which you will need supporting records to claim. You can reclaim 100% of the VAT on running costs of the vehicle even where the vehicle is not used 100% for business, however there are separate rules regarding what VAT can be reclaimed on fuel.
What option is most tax efficient will be dependent on the purchase cost, annual repairs and servicing etc. which vary depending on the age of the vehicle, however you can wait until the end of the first year to compare both methods and decide on the best option for you. However once you have opted for one method you can’t switch in later years.