Private hire vehicles: Mileage allowances or actual expenses, which is the best tax option?

Advance warning: The case of micro-entrepreneurs

Before getting to the heart of the matter, let's clear up one crucial point. If you are a micro-entrepreneur (self-employed), you cannot choose neither actual expenses nor mileage allowances.

Why? Because the tax authorities already apply a flat-rate allowance to your turnover (34,% for BNC services or 50,% for BIC) which is supposed to cover all your professional expenses. You cannot deduct your expenses a second time.

Option 1: Mileage Allowances (IK) – The path of apparent «simplicity»

The principle is simple: you use your personal vehicle for work, and your company reimburses you in the form of a lump sum allowance.

This is a very popular option because these allowances are not neither subject to social security contributions nor income tax. It's «net in your pocket».

What the scale covers (and does not cover)

The mileage scale is an «all-inclusive» flat rate. It includes:

• Depreciation of the vehicle (wear and tear).
• Repair and maintenance costs (tyres, oil changes, brake pads, etc.).
• Insurance premiums.
• The fuel.

Please note: You cannot charge these expenses to the company account if you opt for IK. It is your personal credit card that must be used.

However, you may deduct in addition of the scale:

• Tolls.
• Parking fees punctual (e.g. paid parking while waiting for a customer at the station). Please note that renting a garage or parking space on an annual basis is not additionally deductible, as it is considered residential parking.

The golden rule of vehicle registration

To be eligible for IK, the vehicle must be privately owned. The vehicle registration document must be in your name or, at a pinch, in the name of your spouse if you are in the same tax household. If the vehicle registration document is in the name of the company, IK are strictly prohibited.

In the case of a long-term hire (LLD) or lease purchase agreement (LOA) for personal use, this is possible, provided that the contract is in your name and not in the company's name.

Option 2: Actual Costs – Pure Accounting Logic

Here, the logic is reversed: the vehicle is purchased (or leased) by the company and recorded as an asset. Everything is paid for using the company's credit card.

Tax benefits

• VAT recovery: You can reclaim VAT on fuel, maintenance, tolls and, depending on the model, on the purchase or hire of the vehicle.
• Depreciation: Each year, the company deducts part of the vehicle's value from its taxable profit (which reduces corporation tax).

The resale trap

This is the often overlooked downside. If the company owns the vehicle, when it is resold, the difference between the sale price and the remaining book value (after depreciation) constitutes a professional added value. This capital gain is taxable and may offset a large portion of the tax savings achieved in previous years.

The specifics and risks of private hire vehicles: What they don't always tell you

While IKs may seem attractive, their application to the private hire vehicle industry involves areas of risk that must be managed in order to avoid penalties.

The risk of reclassification as disguised salary

The IK scale was initially designed for secondary professional use (a sales representative who occasionally uses their car). For a private hire vehicle, the car is the main work tool.

If you travel 60,000 km per year in a powerful vehicle, the amount of IK can reach astronomical heights (sometimes exceeding your executive salary). URSSAF may then consider this to be disguised remuneration intended to avoid social security contributions.

The parade: The ruling. It is strongly recommended that you submit a request for a tax and social security ruling. You formally ask the authorities whether your practice is compliant. A lack of response or a positive response protects you legally in the event of a future audit.

The hell of proof (Justification)

In the event of an inspection, the burden of proof lies with you. A simple photograph of the meter at the beginning and end of the year is sufficient. completely inadequate and will result in rejection of the KIs.

You must be able to justify every kilometre travelled for business purposes. This involves:

• A precise record (date, place of departure, place of arrival, reason, number of kilometres).
• The preservation of platform records.

Good to know: Approach journeys (picking up a customer) and return journeys without passengers are business journeys. They must be recorded, but they are more difficult to prove than journeys with a customer on board. The use of a GPS tracking application or a meticulous logbook is therefore essential.

A third strategic option: the Partner Current Account

There is an interesting intermediate strategy suggested by some accountants: sell your personal vehicle to your own company (SASU).

How does it work?

1. You sell your vehicle to your company at its market value (Argus rating).
2. The company does not pay you immediately, but records this amount as a debt owed to you: this is the Partner Current Account (CCA).
3. The company then covers all actual costs (fuel, maintenance, insurance).
4. As soon as the company has cash available, it will repay this debt to you. This repayment is not taxable for you (since it is a debt repayment, not a salary).

This is an excellent way to quickly recover cash without paying tax on it, while switching to a simplified management system where the company pays everything directly.

Verdict: Which option should you choose?

To help you decide, here is a summary of the decision criteria:

In conclusion, while IKs are mathematically advantageous in most cases for a «standard» private hire vehicle, they are not a miracle solution. They require strict discipline in terms of monitoring. If you are not prepared to record every journey, the security and simplicity of actual expenses (or selling the vehicle to the company) will probably be better options for your peace of mind.