Simplified expenses if you’re self-employed

Everything you need to know about simplified expenses when completing your Self Assessment tax return

Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

What are simplified expenses?

HMRC recognises that it can be difficult to work out all of your expenses when you are self-employed, especially when it comes to filling in your Self Assessment tax return. Simplified expenses were designed to make some of that a bit easier by allowing you to claim flat-rate expenses for certain business expenses – this way you don’t have to spend time working out your actual business costs.

You don’t have to use simplified business expenses if you would prefer not to. HMRC will allow you to use your actual business expenses – simplified expenses are just a way to make the process easier for you, if you would prefer.

Who can use simplified expenses?

Not everyone can use simplified expenses. There are some business set-ups which will have to use actual business expenses in their tax returns. The following groups of people can use simplified expenses if they wish:

  • Sole traders
  • Business partnerships, as long as none of the partners are companies.

If your business set up is a limited company, or a business partnership with at least one partner being a limited company, you won’t be able to use simplified expenses.

Where can simplified expenses be used?

HMRC hasn’t set flat-rate expenses to take into account every single area of business expense but you can use their flat rate expenses for the following:

  • Business costs for vehicles
  • Working from home expenses
  • Expenses related to living in your business premises

If you want to claim tax relief on any of your other business expenses, you need to use actual costs to calculate that tax relief.

To use simplified expenses, you need to do the following:

  1. Record your business miles, hours you work at home and how many people live at your business premises over the course of the tax year.
  2. At the end of the tax year, use the flat rate expenses for each of these areas (vehicles, working from home and living at your business premises) to work out your expenses.
  3. Use these amounts when calculating the total for your business expenses when completing your Self Assessment tax return.

You can use the simplified expenses checker on the HMRC website to check whether using simplified expenses will work best for your business. The checker compares what you can claim for simplified expenses with what you can claim by working out your actual business costs.

Simplified expenses for vehicles

Instead of calculating the actual costs for buying and running your vehicle, including such costs as repairs, insurance, fuel and servicing, you can use a flat rate mileage amount in your Self Assessment tax return.

You aren’t allowed to use simplified expenses if you have already claimed capital allowances for the vehicle in question, or if you have already included it as an expense when working out your business expenses.

The flat rate mileage rates are as follows:

Vehicle Flat rate per mile for simplified expenses
Cars and goods vehicles for the first 10,000 miles 45p
Cars and goods vehicles for miles over 10,000 25p
Motorcycles 24p

 

So if, for example, you have driven 12,000 business miles in your car, you would calculate your flat-rate mileage expenses as follows:

10,000 x 45p = £4,500

2,000 x 25p = £500

Total you can claim in simplified vehicle expenses in that tax year: £5,000

 

You don’t need to use simplified expenses for each business vehicle that is used within your business but once you have used simplified expenses for a particular vehicle, you must continue to do so for as long as that vehicle is used in your business.

On top of the simplified mileage expenses, you are also able to claim for your other business travel expenses, such as train journeys and parking expenses.

Simplified expenses for working at home costs

To make your Self Assessment tax return simpler to complete, you can use flat rate expenses to claim your working from home costs. To calculate these, you just need to calculate the hours you spend working from home each month and then use the flat rate expense rates to calculate your expenses. This saves you the effort of trying to calculate the proportion of your home expenses to claim as business expenses – for example, how much of your utility bills need to claimed as a business expense.

You can only use simplified expenses for working from home if you work from home for at least 25 hours a month (or more).

These flat rates don’t include your broadband or phone costs so you can claim your business proportion of those on top of these flat rate expenses – you will need to work out your actual costs to do this.

The flat rates for working from home are:

Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 or more £26

 

So if, for example, you usually work from home for 50 hours per month, but for 3 particular months, you actually worked for 105 hours per month, you could calculate your flat-rate expenses as follows:

9 months x £10 = £90

3 months x £26 = £78

Total to claim for tax year: £168

 

You can use the HMRC simplified expenses checker to work out whether it would be better for your business to use simplified expenses for working from home or actual business costs.

Simplified expenses when living at your business premises

There are a few types of business where the business address is also the business owner’s home – for example, a bed and breakfast or guest house. If your business is one of those businesses, you can use simplified expenses so you don’t have to work out the split between your private and business use of the premises. This can make your Self Assessment tax return simpler to complete.

To use simplified expenses, you calculate the total expenses for the premises. You then use the flat rates to subtract an amount for your personal use of the premises. This is based on the number of people living on the premises and you then claim the rest as your business expenses.

The flat rates to subtract from your business expenses are as follows:

Number of people Flat rate per month
1 £350
2 £500
3 £650

 

So if, for example, you and your husband and your two children run a guest house and live on the premises for the entire year. Your total business expenses for the tax year are £17,000. Your flat rate expenses would be calculated as follows:

12 months x £650 = £7,800

£17,000 – £7,800 = £9,200

So you can claim business expenses of £9,200 for that tax year.

 

If someone only lives at your business premises for part of the year, you can only deduct the flat rate for the months they live there. So, if we go back to the above example, if your two children are away at university and are only back at home in the guest house with you for 3 months over the summer, the calculation would be as follows:

3 x £650 = £1,950

9 x £500 = £4,500

Total flat rate expenses = £6,450

£17,000 – £6,450 = £10,550

So, you would be able to claim business expenses for your guest house of £10,550

 

If you’re not sure whether using simplified expenses is the best method for your business, you can use the HMRC simplified expenses checker to see whether it would be more suitable to use your actual business costs or the simplified flat rates.

How can DSR Tax Claims help?

We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful.  Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

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