Making Tax Digital · Sole traders
Driving instructors and MTD: dual-control car leases, pupil fees, and fuel deductions
ONLY£15A MONTHUnderstand the mileage exclusion for dual-control cars, lease restrictions, fuel costs and advance lesson payments under Making Tax Digital.
Many self-employed people can use a mileage rate instead of adding up vehicle costs. Driving instructors need to pause before following that advice: HMRC specifically excludes dual-control driving instructors’ cars from the simplified mileage method.
That makes the car agreement, running costs and business-use record particularly important. Making Tax Digital brings those records into regular reporting, but it does not remove the special rules for cars or make every monthly car payment a deductible rental.
When Making Tax Digital applies
Making Tax Digital for Income Tax changes how qualifying sole traders and landlords keep records and report income. Under HMRC’s timetable, the starting points are:
- From 6 April 2026, if qualifying income exceeded £50,000 in 2024–25.
- From 6 April 2027, if qualifying income exceeded £30,000 in 2025–26.
- From 6 April 2028, if qualifying income exceeded £20,000 in 2026–27.
Qualifying income generally means gross self-employment and property income combined, before expenses. Salary, pension income and dividends do not count towards this particular test. Check HMRC’s qualifying income guidance, including the treatment of VAT and shorter accounting periods where relevant.
The test uses the relevant earlier tax year; passing a figure during a busy month does not mean you join that day. Exemptions can apply. These rules concern your individual business and property income, rather than a limited company’s Corporation Tax reporting.
Why the standard mileage shortcut does not apply
HMRC’s simplified vehicle expenses guidance excludes cars designed for commercial use, expressly including dual-control driving instructors’ cars. The published 55p and 25p mileage bands for eligible vehicles are therefore not the default claim for that teaching car.
Instead, record the actual eligible vehicle costs and apply the appropriate business-use adjustment. Keep total mileage and business journeys so the proportion can be supported. A lesson route and a trip to collect a pupil may be business travel; a private family journey is not. The purpose and facts matter.
Do not label every pupil collection or drop-off “private” simply because it happens outside the booked lesson. Equally, do not assume all mileage is business because the vehicle has dual controls and roof signage.
Leasing and buying the teaching car
A genuine lease produces rental charges. Buying a car, including through an acquisition finance arrangement, has a different tax treatment. Cars are an exception to the general equipment deduction under the cash basis, so capital allowances normally need considering.
Cars do not qualify for the annual investment allowance. The relevant car allowances depend on the vehicle and purchase conditions. Retain the emissions information, invoice and finance agreement rather than classifying the car as an ordinary van or tool.
Rental restrictions can reduce the claim
Section 48 of the Income Tax (Trading and Other Income) Act 2005 can restrict car hire costs. HMRC explains the emissions threshold and exceptions, including the general 50g/km threshold for current arrangements, and the 15% deduction restriction.
Check whether the restriction applies to your agreement and car; do not assume professional use removes it. Private use is a separate adjustment. Obtain itemised invoices for dual-control installation and other equipment so their treatment can be assessed on the facts.
Worked example: actual costs for a leased car
Farah uses a leased teaching car with 90% business use. Assume the rental restriction applies, no exception is relevant and the illustrative figures exclude VAT complications.
| Cost | Paid | Allowable amount in this example |
|---|---|---|
| Car rentals | £6,000 | £4,590: 90% business share, then 15% restriction |
| Fuel, insurance, repairs and servicing | £4,000 | £3,600: 90% business share |
| Total | £10,000 | £8,190 |
Farah does not add a mileage-rate deduction to these costs. The £8,190 reduces business profit; it is not a tax refund of £8,190. Different lease terms, private use or equipment arrangements could change the calculation.
Fuel, charging and professional costs
Retain fuel receipts and card statements. For an electric teaching car charged at home, record a reasonable business electricity cost supported by charging data, tariffs and use. Do not automatically apply an employer advisory electric mileage rate to a self-employed actual-cost claim.
Business insurance, appropriate breakdown cover, qualifying ADI renewal fees and relevant existing-trade CPD may also belong in the records. Section 34 provides the business purpose test, while HMRC’s training guidance distinguishes developing an existing business from starting a different trade.
Review franchise packages carefully. A single payment may include car hire, branding, booking services and other charges. Retain the breakdown and avoid adding separate costs already included in that package.
Pupil fees and franchise deductions
Under the cash basis, ordinary block-booking fees generally count when received. A pupil paying £400 for ten lessons creates a £400 receipt at that point, even though lessons remain to be delivered. Maintain a separate lesson balance to track the commitment and any refunds.
Where a franchise collects your pupil fees as agent and deducts its charge, record the gross earnings and charge separately. If it supplies the lessons itself and pays you an agreed fee, establish your income from that contract. The bank settlement alone may not explain the arrangement.
A manageable quarterly routine
For a business using standard tax-year periods, the 2026–27 quarterly update deadlines are 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027. Updates are cumulative: each covers the tax year so far. Calendar update periods are also available, with the same deadlines.
Keep digital income and expense records, reconcile them regularly and send the required totals through compatible software. The Income Tax (Digital Obligations) Regulations 2026 underpin the requirements; HMRC’s digital record-keeping notice explains the applicable directions. A bank feed needs supporting detail wherever a payment conceals fees, private purchases or several transactions.
Normally, record the transaction date, amount and relevant category, retaining supporting invoices or receipts. HMRC’s digital records guidance explains permitted simplifications and digital links where more than one software product is used.
Quarterly updates do not replace the annual tax return. The 2026–27 return is due by 31 January 2028, and normal tax payment dates continue. HMRC is not applying late quarterly update penalties for 2026–27, but digital records and updates are still required. That first-year approach does not waive other filing or payment obligations.
Give the car claim a sound foundation
Accurate agreements, journey records and lesson receipts make reporting easier throughout the year. Avona.app costs £15/month, with Avona AI supporting categorisation. Avona Concierge is managed by chartered accountants and starts from £60/month for help with vehicle treatment and ongoing accounts.