Mileage Allowance or Actual Costs: Which Is Better for Private Hire Drivers?
Neither method is universally better. The right answer depends on your mileage, your running costs, and whether you own or rent your vehicle. The only way to know is to calculate both.
The two methods
HMRC allows self-employed private hire drivers two ways to claim vehicle costs. You must choose one method per vehicle and stick with it. You cannot switch methods for the same car once you have started.
The mileage method
You claim a fixed rate for every business mile you drive. That rate covers fuel, insurance, servicing, repairs, MOT, and depreciation. You cannot then claim any of those costs separately.
The rates are:
| Tax year | First 10,000 business miles | Each mile after 10,000 |
|---|---|---|
| 2025/26 | 45p per mile | 25p per mile |
| 2026/27 | 55p per mile | 25p per mile |
Both rates apply regardless of fuel type. An electric vehicle gets the same rate as a petrol or diesel car.
You must keep a mileage log recording the date, purpose, and distance of every business journey. The log is your evidence if HMRC asks.
The actual costs method
You claim the real costs of running the vehicle: fuel or charging, insurance, servicing, repairs, MOT, and road tax. You can also claim capital allowances on the purchase price if you own the car (see below). Each cost is restricted to the proportion of your total driving that is for business.
For example, if 80% of your total miles are business miles, you claim 80% of your running costs. You must keep receipts and records to support every figure.
The one rule you cannot break: choose your method when you first use a vehicle in your business and stay with it for that vehicle. If you claim capital allowances on a car, you cannot use the mileage method for that car.
Can you use the mileage method as a private hire driver?
Yes, in most cases. If you drive an ordinary car, a saloon, hatchback, estate or MPV, for Uber, Bolt or FreeNow, you can use either method.
The exception is vehicles designed for commercial use. HMRC does not allow the mileage method for these, such as traditional black cabs and dual-control driving instructor cars. What matters is how the vehicle is built, not the licence it holds.
An ordinary saloon, estate or MPV licensed as a hackney carriage by a local council is still an ordinary car, so the mileage method is open to it. If your vehicle is one of these purpose-built types, you must use the actual costs method, and you can claim full capital allowances on it instead.
What actually determines which method wins for private hire drivers
Generic advice on this topic is usually written for freelancers or tradespeople doing 8,000 to 15,000 miles a year in a modest car. Private hire drivers are in a different position. Three costs in particular can shift the comparison significantly:
- Private hire insurance: a PHV or PCO policy typically costs £1,500 to £3,000 or more annually, depending on driving history, vehicle type, and location. This is far above standard motor insurance and is a large fixed sum on the actual costs side that generic comparisons do not account for.
- Capital allowances on a purchased car: even on a petrol or diesel car, annual allowances on a newer, higher-value vehicle can be significant. On a new electric car the advantage in year one can be very large.
- Weekly rental charges: many private hire drivers rent rather than own. A rental at £185 to £250 or more per week covering the car and most running costs creates a large actual costs claim that the mileage rate may not match. Note that if the rented car has CO2 emissions above 50g/km, 15% of the rental cost is disallowed, which reduces the actual costs claim.
Mileage volume matters too, but it is rarely the deciding factor on its own. A driver on 12,500 miles with £3,200 PHV insurance will often find actual costs win. A driver on 30,000 miles in a cheap, efficient older car may find mileage wins. You need to calculate both.
Example 1: part-time driver, older petrol car
Aisha drives part-time and covers 12,000 business miles in the year in a used petrol car she already owned. Business use is 80%.
Mileage method (2026/27 rates)
| Miles | Rate | Deduction |
|---|---|---|
| First 10,000 miles | 55p per mile | £5,500 |
| Remaining 2,000 miles | 25p per mile | £500 |
| Total deduction | £6,000 | |
Actual costs method (80% business use)
| Expense | Annual cost | At 80% business use |
|---|---|---|
| Fuel | £2,600 | £2,080 |
| Private hire insurance | £1,600 | £1,280 |
| Servicing, MOT, repairs, tyres | £900 | £720 |
| Breakdown cover | £100 | £80 |
| Total deduction | £4,160 | |
The mileage method gives £6,000 against £4,160 on actual costs. The mileage method wins by £1,840. Running costs are modest and the flat rate is generous at this mileage level.
Note: these examples use 2026/27 rates (55p/25p). For 2025/26 the first-tier rate was 45p, which gives a mileage deduction of £5,000 for the same miles. The lower rate meant actual costs were more likely to win in 2025/26 for drivers in this mileage range.
Example 2: full-time driver, new electric car
Marek drives full-time and covers 38,000 business miles in the year. He buys a new electric car for £36,000. Business use is 90%. He charges almost entirely at home overnight.
Mileage method (2026/27 rates)
| Miles | Rate | Deduction |
|---|---|---|
| First 10,000 miles | 55p per mile | £5,500 |
| Remaining 28,000 miles | 25p per mile | £7,000 |
| Total deduction | £12,500 | |
Actual costs method (90% business use)
| Expense | Annual cost | At 90% business use |
|---|---|---|
| Charging (home overnight) | £3,055 | £2,750 |
| Private hire insurance | £2,222 | £2,000 |
| Servicing, tyres | £1,333 | £1,200 |
| Breakdown cover, sundries | £222 | £200 |
| Running costs subtotal | £6,832 | £6,150 (at 90%) |
| First-year allowance on car (£36,000 × 90%) | £32,400 | |
| Total deduction, year one | £38,550 | |
Actual costs give £38,550 against £12,500 on mileage. Actual costs win by more than £26,000 in year one. Almost all of that gap is the 100% first-year allowance on the electric car, which the mileage method cannot match.
The first-year allowance is a one-off. In later years Marek's actual costs are just the running costs, around £6,150, which is less than the £12,500 the mileage method would give. But because he claimed capital allowances, he can never switch that car to the mileage method. He is committed to actual costs for as long as he owns it. Whether that pays off overall depends on how long he keeps the car and how many miles he drives each year.
Capital allowances on the vehicle purchase
Capital allowances are only available under the actual costs method, and only if you own the vehicle. They allow you to deduct part or all of the purchase price from your taxable profit, restricted to the business-use proportion.
The rates are:
| Vehicle type | Allowance | How it works |
|---|---|---|
| New, unused zero-emission (electric) car | 100% First Year Allowance | Full business-use proportion deducted in year one |
| Car with CO2 up to 50g/km (2025/26) | 18% Writing Down Allowance | 18% of remaining balance deducted each year |
| Car with CO2 up to 50g/km (2026/27 onwards) | 14% Writing Down Allowance | 14% of remaining balance deducted each year |
| Car with CO2 above 50g/km | 6% Writing Down Allowance | 6% of remaining balance deducted each year |
If you are using the mileage method, you cannot claim capital allowances. The mileage rate already accounts for depreciation.
The 100% first-year allowance for new electric cars is available until 5 April 2027. No extension beyond that date has been announced.
For a full explanation of capital allowances for private hire drivers, including leased vehicles and hire purchase, see our page on vehicle expenses and capital allowances.
Two decisions you cannot undo
Once you pick a method for a car, you keep it for that car. You cannot use the mileage rate one year and actual costs the next for the same vehicle. You can only choose again when you change to a different car.
Claiming capital allowances rules out mileage for that car. If you claim capital allowances on a car, including the first-year allowance on an electric car, you can never use the mileage method for it. The two do not mix. This is why a comparison in your first year with a car matters. The wrong choice can follow the car for as long as you own it.
All business miles count, regardless of platform
If you drive for more than one platform, all business miles are combined in a single mileage log. You do not keep separate logs for Uber, Bolt, and FreeNow. The total business miles from all platforms determine what the mileage method pays out.
Under the actual costs method, your business-use percentage is calculated across all driving you do, not per platform.
How to work out which is better for you
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1Add up your business miles
Use your mileage log for the year. Business miles are the miles you drive for fares, including driving to collect a passenger, but not your private trips.
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2Work out your mileage claim
First 10,000 business miles at 55p for 2026/27, then 25p for the rest. For 2025/26 and earlier, use 45p then 25p.
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3Add up your actual running costs
Fuel or charging, insurance, servicing, repairs, MOT, tyres, road tax and breakdown cover for the whole year. If you rent, use the total rental payments instead.
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4Apply your business share
If you use the car privately as well, claim only the business-use proportion of your running costs.
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5Add capital allowances if you own the car
This includes the first-year allowance on a new electric car, or the annual writing-down allowance on a petrol or diesel car. This step often decides the result.
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6Compare the two totals
The bigger figure is the better deduction for that year. But remember the choice is locked to the car, so think beyond year one, especially if you have just bought the car.
We run this comparison as part of preparing your return. When we take on a driver, we work out both methods on your actual figures and confirm the result in writing, so there is a clear record. If you have just bought a car, or you are considering an electric one, this is worth getting right before you file.
Common questions
No, not for the same vehicle. Once you have used the mileage method for a car, you must continue with it for that car for as long as you use it in your business. If you buy a new vehicle, you can choose either method fresh for that car.
Yes. The mileage rate covers fuel, insurance, servicing, repairs, MOT, and depreciation. You cannot then claim any of those costs separately. You can still claim other business expenses such as your platform licence fee, DBS check, and phone costs.
No. The HMRC mileage rate is the same regardless of fuel type. An electric vehicle claims at the same rate as a petrol or diesel car: 55p per mile for the first 10,000 business miles in 2026/27 (45p in 2025/26), then 25p per mile after that.
You need a contemporaneous mileage log recording the date, purpose, and distance of every business journey. It should be kept as you go, not reconstructed at year end. Your platform earnings summary shows trip counts but does not replace a mileage log, as HMRC requires journey-level detail.
No. Capital allowances apply only to vehicles you own. If you rent or lease, you claim the rental or lease payments as a business expense at your business-use proportion instead. For cars with CO2 emissions above 50g/km, 15% of the rental cost is disallowed, reducing your actual costs claim.
It depends on your vehicle and expected mileage. If you have recently purchased a new electric or low-emission car, actual costs with a capital allowance claim is worth calculating before you commit. If you are driving an older car with high annual mileage and modest running costs, the mileage method is often the simpler and larger deduction. The right answer requires calculating both for your specific figures.
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