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Simplified expenses if you're self-employed

Simplified expenses if you’re self-employed

What are simplified expenses?

Simplified expenses are a way of calculating certain business expenses using flat rates set by HMRC instead of calculating the actual business expense. Using simplfied expenses is optional. You can decide if it is right for your business or not.

Who can use simplified expenses?

Simplfied expenses can be used by:

  • sole traders
  • partnerships that do not have any companies as partners

Limited companies and partnerships which have companies as partners can not use simplified expenses.

What are the expenses covered?

You can use flat rates for:

  • business costs for motor vehicles
  • working from home
  • living in your business premises

All other business expenses must be calculated as the actual cost.

How to use simplified expenses

Record your business miles for vehicles, hours worked at home and how many people live at your business premises over the year.

At the end of the tax year use the flat rates for vehicles, working from home and living at your business premises to work out your expenses.

Include these amounts in the total for your expenses in your Self Assessment tax return.

Vehicles

Calculate your car, van or motorcycle expenses using the flat rate for mileage instead of the actual costs of buying and running your vehicle (ie , fuel, repairs, insurance, servicing).

You don’t have to use the flat rates for all your vehicles. But, once you use the flat rates for a vehicle you must continue to do so for as long as that vehicle is used in your business.

The rates applicable for 2018/19 and 2019/20 are as follows:

For each of the first 10,000 business miles

For each business mile over 10,000

Cars and goods vehicles

45p

25p

Motorcycles

24p

24p

You can claim car parking on top of your vehicle expenses. Claim all your other travel expenses that you incur, for example, train and bus fares, flights.

Working from home

If you work from home you can calculate your allowable expenses using a flat rate based on the number of hours you work from home each month.  If you choose this method then it means you don’t have to work out the proportion of personal and business use for your home, eg. how much of your utility bills are for business.

The flat rate doesn’t include telephone or internet expenses. To claim the business use of these expenses you would need to work out the actual costs incurred.

You can only use simplified expenses if you work for 25 hours or more a month from home. The monthly rates of deduction for 2018/19 and 2019/20 are as follows:

Number of hours worked from home per month

Allowable amount

25-50

£10

51-100

£18

101+

£26

Living at your business premises

This applies to businesses who use their business premises as their home. This affects a small number of businesses , eg. a small care home, guesthouse, bed and breakfast.

If you choose to use simplified expenses then you don’t have to work out the split between business and personal use for your premises expenses.

With simplified expenses you work out the total expenses for the premises and use the flat rates to subtract an amount for personal use of the premises to arrive at the amount you can claim as a business expense. The deduction is based on the number of people living at the premises.

Number of people

Flat rate per month

1

£350

2

£500

3+

£650

For example, the business premises costs of a guesthouse are £16,000 pa. It is run by a husband and wife who live there all year. Using the flat rate for 2 people, £650 for 12 months, the calculation would be:

Flat rate deduction = £650 x 12 = £6000

Business expense to claim = £16,000 – £6,000 = £10,000.

Should I use Simplified Expenses?

Using simplified expenses is optional. It is also not that easy to know if opting to use simplified expenses is beneficial to the amount of tax that you will be paying. That is, to know whether simplified expenses save tax or result in a higher tax bill than if the actual costs have been calculated and included as the business expense.

HMRC offer a simplified expenses checker to help you make the comparison. However this checker relies on you having fairly accurately calculated the actual costs inorder to make the comparison.  Otherwise the outcome will not be reliable. This is an area where taking advice from an accountant or tax adviser should ensure that your business profits are calculated using the most beneficial option for you and you don’t pay more tax than you need to.

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