Vehicles are one of the most common business assets, but also one of the most confusing when it comes to claiming costs — largely because the rules differ significantly depending on whether you’re a sole trader using your own car, or a limited company providing a vehicle to a director or employee.
Sole traders: mileage vs actual costs
If you’re a sole trader using a vehicle for business, you generally have two options for claiming the cost, and you need to pick one method and stick with it for that vehicle.
Simplified mileage rates let you claim a flat rate per business mile, covering fuel, wear and tear, insurance, and other running costs in one figure. This is straightforward — no need to keep receipts for every fill-up or service — and works well if you don’t want the admin of tracking every cost, or if your vehicle is used for both personal and business journeys.
Actual costs means claiming the real cost of running the vehicle — fuel, insurance, servicing, repairs, and a capital allowance for the vehicle itself — apportioned between business and personal use based on mileage. This can work out better for expensive-to-run vehicles, but requires more careful record-keeping, including a mileage log to establish the business-use percentage.
Sole trader example: A self-employed sales consultant drives 8,000 business miles a year and claims simplified mileage rates, avoiding the need to track fuel receipts and servicing costs individually.
Sole trader example: A sole trader with a specialist high-cost vehicle used mostly for work chooses actual costs instead, since the mileage rate wouldn’t reflect the vehicle’s higher running costs.
Limited companies: company cars and benefit-in-kind
For a limited company, the situation is different because the vehicle is generally owned or leased by the company, not the individual. If a director or employee has private use of that vehicle — including simply driving it home — this typically creates a taxable benefit-in-kind, meaning both the individual and the company face additional tax and National Insurance charges based on the vehicle’s value and emissions.
Because of this, many companies find that providing a personal car as a company vehicle is tax-inefficient once private use is factored in, particularly for higher-emission vehicles. Some businesses instead have the director use their own vehicle and claim mileage from the company at the approved rates, similar in spirit to the sole trader mileage approach — this avoids the benefit-in-kind charge entirely, provided the payments don’t exceed the approved rate.
Limited company example: A company provides a low-emission company car to a sales director, accepting the benefit-in-kind charge as a manageable cost given the vehicle’s efficiency rating.
Limited company example: A company chooses not to provide company cars at all, instead reimbursing directors and employees at the approved mileage rate for business journeys made in their own vehicles, avoiding benefit-in-kind tax entirely.
Vans and commercial vehicles
Vans and other commercial vehicles are generally treated more favourably than cars for both companies and sole traders, particularly around VAT recovery and capital allowances, since they’re viewed primarily as tools for the business rather than a personal benefit. Where there’s some limited private use — occasionally taking the van home, for example — this is often treated more leniently than car use, though it can still trigger a smaller benefit-in-kind charge for a company vehicle depending on the specifics.
Sole trader example: A sole trader plumber’s van is used almost entirely for work, with the occasional personal trip; because it’s a van rather than a car, the tax treatment is generally more straightforward.
Limited company example: A company provides vans to its field engineers, who take them home overnight for early starts — a common arrangement that usually avoids triggering the same level of benefit-in-kind charge that a car would.
One important exception: double-cab pickups are no longer treated as vans for tax purposes. Since 6 April 2025, HMRC classifies most double-cab pickups as cars for benefit-in-kind and capital allowance purposes, following their payload-based test being dropped in favour of a car/van split closer to VAT rules. If you’re running — or considering — a double-cab pickup as a company vehicle, it’s worth checking its current classification before assuming van-style tax treatment applies.
Electric and low-emission vehicles
Both structures currently see more favourable tax treatment for electric and low-emission vehicles compared with higher-emission equivalents — lower benefit-in-kind rates for company cars, and more generous capital allowance treatment for outright purchase. This is a fast-moving area, with rates and thresholds subject to change, so it’s worth checking current rules before deciding on a vehicle purely for tax reasons.
The limited company vs sole trader difference
This is one of the clearest divides in how the two structures are taxed:
- Sole traders are taxed as an individual on the business use of their own vehicle, via mileage claims or actual cost apportionment through Self Assessment. There’s no separate “benefit” to worry about, since there’s no legal distinction between the trader and the business.
- Limited companies face a more complex picture when a company-owned vehicle is available for private use, triggering benefit-in-kind tax for the individual and Class 1A National Insurance for the company. Many companies sidestep this altogether by reimbursing personal vehicle use at approved mileage rates instead.
Given how much this can affect the numbers, it’s often worth running the sums both ways — company vehicle vs mileage reimbursement — before committing to an approach, particularly for higher-value or higher-emission vehicles.