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Tax & Accounting

Can mileage claims include loan interest

By Ali Jaw ·

Mileage claims are a common way for business owners and employees to offset the cost of using their own vehicles for work purposes. However, there’s often confusion about what expenses can legitimately be included within a mileage claim. One question that crops up regularly is whether loan interest on a vehicle can be claimed as part of your mileage allowance. Let’s explore this in detail.

The basics of HMRC mileage claims

The HMRC recognises that using your own vehicle for business purposes incurs genuine costs. To simplify matters, HMRC has established approved mileage rates—often called the Approved Mileage Allowance Relief (AMAR)—which allow you to claim a fixed amount per mile without having to justify every individual expense.

For the 2024/25 tax year, the approved rates are:

  • Cars and vans: 45p per mile (first 10,000 miles), then 25p per mile thereafter
  • Motorcycles: 24p per mile
  • Bicycles: 20p per mile

These rates are designed to cover the typical running costs of a vehicle, including fuel, maintenance, and depreciation. Importantly, they’re a simplified alternative to claiming actual expenses—you can’t use both methods simultaneously.

Can loan interest be claimed separately?

Here’s the key point: you cannot claim loan interest as a separate expense alongside AMAR claims. When you use the approved mileage rates, you’re accepting a fixed, all-in allowance that’s meant to cover the broad spectrum of vehicle operating costs.

The HMRC’s position is clear: the approved rates already factor in the average costs of vehicle ownership and operation. Loan interest, whether it’s a personal loan used to purchase a vehicle or a car finance agreement, falls outside what can be additionally claimed on top of AMAR.

Actual expenses method: a different approach

If you want to claim loan interest on a vehicle, you’d need to abandon the approved mileage rates altogether and instead claim actual expenses. This method allows you to deduct the genuine, business-related costs you’ve actually incurred, which could include:

  • Fuel costs
  • Insurance premiums (business portion)
  • Road tax
  • Maintenance and repairs
  • Depreciation (capital allowance)
  • Loan interest (if the vehicle is genuinely used for business)

However, this approach requires meticulous record-keeping. You’ll need to maintain detailed records of all expenditure and work out what proportion of your vehicle’s use is for business purposes versus personal use. HMRC is particularly strict about apportionment—you can only claim the business percentage.

For example, if your vehicle is used 60% for business and 40% for personal use, you can only claim 60% of the loan interest and other costs. Many business owners find this administrative burden outweighs the potential benefit, particularly if their business mileage is modest.

Which method should you choose?

The choice between approved mileage rates and actual expenses depends on your individual circumstances. The AMAR method is simpler and requires minimal record-keeping, making it popular with sole traders and smaller businesses. You simply record your business mileage and multiply it by the approved rate.

The actual expenses method may work out better if you have substantial business mileage, higher vehicle costs, or significant loan interest to claim. However, the administrative requirements are more demanding, and you’ll need to substantiate everything to HMRC if challenged.

If loan interest is a significant element of your vehicle costs, it might be worth calculating both scenarios to see which yields a better result. Many accountants recommend working through the numbers annually to determine the optimal approach for your business.

Self-assessment and record-keeping

Whether you opt for AMAR or actual expenses, accurate records are essential. For mileage claims, keep a mileage log showing business journeys, dates, and purposes. For the actual expenses method, retain receipts, invoices, and loan statements.

When completing your Self Assessment tax return, mileage allowances are usually claimed as a deduction from trading income (if you’re self-employed) or as an employment allowance (if you’re an employee claiming against your employer’s reimbursement).

Final thoughts

Loan interest on a vehicle cannot be claimed in addition to approved mileage allowance relief. You must choose between the simplified AMAR method and the actual expenses method. If vehicle finance forms a substantial part of your motoring costs, exploring the actual expenses route—with professional guidance—may prove worthwhile.

For tailored advice on which method suits your business and how to maximise your vehicle-related tax relief, contact Severn Accounting—we’re here to help.