Mileage Allowance vs. Actual Vehicle Expenses

For UK Uber and PCO drivers, the choice between the 45p/25p simplified mileage rate and actual cost apportionment is the single largest expense decision. The wrong choice can cost £2,000-£6,000 per year in unclaimed deductions for high-mileage drivers, or trigger HMRC enquiry if the basis is inconsistent. Once a method is chosen, HMRC restricts switching for the same vehicle. The dead-mileage trap, finance interest treatment, and accurate business-vs-personal use split each shift the optimal answer.

The 45p/25p simplified mileage rate

The simplified rate covers all running costs in a single per-mile figure:

• 45p per mile for the first 10,000 business miles per year.
• 25p per mile for business miles above 10,000.
• Covers fuel, insurance, servicing, repairs, road tax, depreciation, finance interest.
• Does NOT cover: tolls, congestion charges, parking, ULEZ — these are separately deductible.
• Excludes: capital allowances on the vehicle (already covered in the per-mile rate).

Actual cost method

The actual cost method apportions real running costs:

1. 1Track all vehicle costs: fuel, insurance, servicing, repairs, road tax, MOT, finance interest, depreciation.
2. 2Calculate business-use proportion (typically 80-95% for full-time drivers).
3. 3Apply business proportion to total costs.
4. 4Add capital allowances on the vehicle (Annual Investment Allowance or Writing Down Allowance).
5. 5Result is total deductible vehicle expense for the year.

For high-mileage drivers (25,000+ business miles per year), actual cost typically beats simplified mileage by £2,000-£5,000 per year because the per-mile rate is calibrated for lower-mileage employees.

Switching between methods: HMRC restrictions

• Once you choose simplified mileage on a vehicle, you must continue with simplified mileage for that vehicle for as long as you own/lease it.
• Once you choose actual cost, you can typically continue or switch to simplified ONLY at change of vehicle.
• A new vehicle (purchase or lease) is the natural restart point for method choice.
• For multi-vehicle drivers (rare for sole traders): choose method per vehicle separately.
• Documentation: keep records justifying the chosen method, especially for HMRC enquiry purposes.

The dead mileage trap

Dead mileage is travel without a paying passenger: cruising for fares, repositioning between zones, returning home empty. The HMRC treatment:

• Deadhead miles between accepting a job and reaching the pickup: business miles.
• Cruising/searching miles between fares: business miles (genuinely available for business).
• Trip from home to first pickup: arguably business mileage where the driver is "on shift" (though HMRC has challenged in some cases).
• Trip from last drop-off back to home: arguably business if "on shift"; less defensible if explicitly off-shift.
• Personal trips during a shift (lunch run, picking up dry-cleaning): NOT business mileage.

Car finance interest and PCO lease

• Car finance interest (HP, PCP, business loan): deductible on business-use proportion if using actual cost method. Already included in 45p rate if using simplified.
• Operating lease (rental) payments: deductible on business-use proportion if using actual cost. Already in 45p rate.
• PCO weekly rental: typically deductible at 100% if vehicle exclusively for PCO use; otherwise apportioned.
• Capital element of HP/PCP balloon: capital allowance via AIA or WDA, not direct expense.

Personal use vs business use ledger split

For drivers using their PCO vehicle for personal trips, accurate split matters:

1. 1Track total miles (odometer at year-start and year-end).
2. 2Track business miles (GPS app log of all PCO journeys).
3. 3Personal miles = total - business.
4. 4Calculate business-use percentage for actual cost apportionment.
5. 5Document the split methodology consistently year on year.

Typical full-time driver business-use percentage: 85-95%. Part-time driver (also using car for school runs, weekend trips): 50-75%.

Cost-benefit: which method saves more?

A practical decision framework:

• Low mileage (under 10,000 business miles): simplified usually wins. Less paperwork.
• Medium mileage (10,000-25,000): break-even depending on vehicle type and fuel cost. Run both calculations annually.
• High mileage (25,000+): actual cost typically wins by £2-£5k/year, especially for higher-cost vehicles.
• Newer vehicle (under 3 years, financed): actual cost wins more often due to depreciation/capital allowance benefit.
• Older paid-off vehicle: simplified often wins (low actual costs, full mileage rate).