Flat rate expenses are designed to simplify record keeping and save time working out expenses, but the rules can be confusing if you have multiple sole trader businesses.
In this article, we’ll explain exactly what flat rate expenses are, as well as how to work out your claim if you run more than one business as a sole trader.
What are flat rate expenses and how do they work?
In a nutshell, flat rate (or simplified) expenses are a way of working out how much tax relief you can claim for business expenses using flat rates set by HMRC, instead of going through the rigmarole of calculating your actual costs.
Introduced by HMRC to simplify the process of claiming expenses, they are a great option to have.
As a sole trader you’re allowed to use either method, so it’s worth calculating which method will actually knock the most money off your tax bill before you commit to either. If you find it would ultimately be more beneficial for your business to claim tax relief on your actual costs, then by all means go with that.
When might actual expenses be a better option?
You may want to consider using the ‘actual costs’ method of calculating expenses if any of the following is true of your business:
- High-cost or asset heavy
- Significant shared expenses
- The amount you spend is higher than the amount you could claim using flat rate expenses
Who can claim flat rate expenses?
One of the benefits of operating as a sole trader (or in a partnership, for that matter) is that you are able to claim for simplified expenses.
This is not the case for limited companies, or partnerships where one of the partners is a limited company.
Can you use flat rate expenses for multiple businesses?
In short, yes. Remember, though, sole traders aren’t legally separate from their business(es), and this means flat rate expenses are applied per individual, not per business.
This is a really important point! If you’re using the same home office or vehicle for each of your different businesses, you could quite easily fall into the trap of claiming flat rate expenses multiple times (i.e. for each business), which isn’t right.
Being careful not to claim the same expenses twice
As a sole trader, you are your business(es). This means HMRC expects you to consider combined usage, not each business in isolation. You can only claim once to cover everything.
It’s worth keeping in mind that you can use simplified expenses to claim for the cost of working from home, but only for a minimum 25 hours per month. So this combined usage might actually be useful if you’re running multiple sole trader businesses from the same place!
Record-keeping and compliance considerations
It’s crucial that you keep accurate and up-to-date records of all the transactions in your different businesses, as this will help you work out what you’re entitled to. There are other reasons to do this, too.
Not only could HMRC ask to check your records at random, but the amount of tax and NI you owe as a sole trader is calculated on the total amount of profits you make from all your businesses added together, and so you need to be able to work this out.
Preparing for Making Tax Digital
The other elephant in the room is Making Tax Digital (MTD), which continues to gradually roll out. MTD for Income Tax (MTD IT for short) is the forthcoming phase of the rollout which will start to replace the current system for filing your Self Assessment from April 2026 for some sole traders and landlords.
Why not get ahead of the curve and start digitising your records now?
If you’re unsure about any of this, you can always seek professional advice from a qualified accountant, who will be able to simplify the whole process and ensure you’re operating in the most tax-efficient way possible.
Learn more about our online accountancy services for self-employed people like you. To talk to one of the team, call 020 3355 4047, request a free call back, or get an instant online quote.
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