How to Track Your Mileage for Taxes
It is well acknowledged that many contractors choose to work for themselves as a limited company as this can represent the most tax efficient methodology of working, depending on the circumstances.
Whilst managing the financial aspects of the business can be made easier by choosing an accountant to assist with the legalities of the annual accounts, many contractors still struggle with tracking their daily expenses. Related to this, if you utilise a personal vehicle for business purposes then the business mileage deduction is a scheme which can save money on your tax bill. However, in order to support claims related to travel, HMRC insists that limited company contractors provide evidence in the form of an accurate mileage log, which must be updated in parallel with any business associated mileage (i.e. the records cannot be backdated). Getting your mileage tracking correct is very important for claiming your contractor expenses.
HMRC Milleage Tracking Requirements
For this reason, it is of utmost importance that you utilise an efficient strategy to begin tracking your mileage any time you complete a trip. However, what details should the mileage log include? In general, HMRC requires the following information to be recorded:
- Date that the journey occurred
- The reason for the journey (business related)
- The starting point and final destination
- Distance travelled
It is highly recommended that self-employed limited company contractors also maintain records of their personal mileage, just in case. These records should be kept for at least five years after submission in case the tax agency requests to review your record keeping history.
Fortunately, HMRC permits mileage records to be presented using any preferred method, as long as the details are accurate and reliable. However, many contractors often find this a difficult task as not utilising a specially designed system can result in substantial manual data entry of every journey made. There is a consensus that mileage tracking can often be a chore and it is difficult to remember to log the details of every single journey. Paper mileage logs often seem appealing due to their ease, but it must be acknowledged that these are susceptible to loss or damage (especially over the course of five years). Computer-based spreadsheets are commonly used, although these are also subject to loss (if your computer malfunctions) and do not overcome the challenge of remembering to log every business related to journey.
In an attempt to resolve this increasing demand, a number of mileage-tracking apps have been developed. The fact that most smartphones feature inbuilt GPS systems, means that often these mileage-tracking apps do not require you to remember to commence logging a trip. In fact, often the only information you may need to supply is whether the journey was for business or personal purposes. This automatic drive detection function of many of these makes it easier to track every single business-related drive. An additional benefit of utilising a mileage-tracking app is that the data is securely stored (such as on cloud-based software, FreeAgent), which avoids the issue of data loss.
However, with a number of mileage-tracking apps widely available, it is often difficult to select the best one to use depending on the specific needs of your limited company. With this in mind, we have compiled a list and short summary of some commonly used mileage-tracking apps
Best Mileage Recording/Tracking Apps for Sole Traders
Is a relatively new app aimed at small businesses who are interested in a budget-friendly simple app. A free version of this app is available to cover up to 40 drives per month in multiple vehicles and offers the ability for detailed reports to be exported. A simple categorise function also allows you to divide date depending on if the journey was for business or personal use. The premium version of this app has the benefit of covering unlimited trips per month. MileIQ does not feature a functionality to automatically calculate any tax-related costs.
The Everlance app is available at a small cost per year and offers automatic mileage tracking, which can be linked to your business bank account, meaning it can further function as an all-inclusive expense tracker. The app also enables any journeys made to be categorised effectively depending on their purpose. In addition, Everlance offers the opportunity to set specific work hours when the tracker will actively log your mileage (and ignore any journeys made outside of these time constraints). Everlance can supply detailed reports which include GPS mapping data, photographs, time zones and other information. The app is described as offering documentation that is IRS guideline complaint.
The Mile Cloud app can track your mileage for a small fee per annum, with the availability to manually enter data being uncapped. The app also offers categorisation of trips through a series of tabs. Mile Cloud generates reasonable reports of the mileage-tracking data which can be shared in two main formats (PDF or CSV). The interface offered by this app is somewhat simpler than others available on the market and the categorisation system has been described as not being as quick to use.
Hurdlr offers the ability to track mileage as well as estimated taxes. When linked to your bank account, the app can track self-employment taxes and even remind you of scheduled payments which can be made through the app itself. The free version of the app also includes unlimited auto-mileage tracking, the manual addition of income/expenses and tax calculation summaries. The report outputs of Hurdlr can be exported via email reports to CPA. Further to this, the premium version of Hurdlr enables automated expense tracking, calculation of tax estimates featuring payment reminders. Furthermore, you can specify work hours when mileage will be logged.
QuickBooks Self-Employed is an example of an ‘all-in-one’ tracker which combines the ability to track mileage with different accounting services (if the TurboTax bundle plan is implemented). Functionalities are automatic mileage tracking, connection to bank accounts, tracking of income/expenses, generation of invoices, attachment of receipts to transactions, calculations of tax payments with reminders. Reports from this system are automatically transferred to your Schedule C (if you also use the TurboTax software). Although all of these functionalities are appealing, the app can be considered expensive to some small businesses.
Overall, there are a number of apps which are specifically designed to overcome the challenges of accurately documenting mileage for small businesses. If you are unsure how best to keep a detailed record of this information, then it is best advised to consult with a specialist accountant, who can not only help you effectively prepare for annual tax reporting but can also give expert guidance on the best way to track any mileage incurred bespoke to the needs of your particular business.
FreeAgent, industry standard bookkeeping software designed with Contractors and Freelancers in mind also caters for the time conscious worker, having relaunched their stopwatch timer. Simply hit start and once the job is complete, hit stop and attach your time to your invoice.
Read our blog post on ‘Four Essential Time Tracking Tools for Freelancers’ for more information.
If you’re interested in FreeAgent or would like to request a free demo, get in touch with or New Business team on 0330 024 0406 or email email@example.com