It’s not often than you’ll see the words ‘simple’ and ‘expenses’ in the same sentence, given that they can get a bit complicated. In an effort to simplify things though, HMRC offer what they call ‘simplified expenses’.
If this is news to you, we’ll explain what simplified expenses are, and how they might be useful for you and your business.
What are simplified expenses?
Rather than having to calculate your business costs in detail, simplified expenses mean you can use a flat rate to work them out instead. HMRC have put simplified expenses into place so that self-employed workers, sole traders and partnerships can maximise tax relief with minimal effort.
If you’ve noticed that limited companies are missing from that list, then top marks! A limited company, or even a business partnership where one of the parties is a limited company, cannot use simplified expenses. Watch our video below about business expenses.
What is covered by simplified expenses?
HMRC have identified three areas where flat rates can be used rather than working out the actual costs.
The costs of running or keeping a vehicle for the business
Under simplified expenses you can use a flat rate to reclaim costs based on the vehicle’s mileage, which includes cars, vans, and motorbikes. The rate is designed to include all of the running costs of the vehicle
If you’re claiming for a car or a goods vehicle, you can claim 45p per mile up to 10,000 miles, whilst anything over 10,000 miles permits a claim of 25p per mile. Take note of the different rate for motorbikes though! You can claim for a motorcycle at a rate of 24p per mile.
It’s worth noting that you can apply simplified expenses to one vehicle but use actual business costs for another. Just keep in mind that you can’t swap between systems mid-year.
Costs associated with working from home
The flat rate that you can use to work out your expenses for working from home depends on how many hours you actually work from home. Anything under 25 hours per week and you’re not able to use simplified expenses for your home working costs.
25-50 hours a week allows you to claim £10 per month
51-100 hours allows a claim of £18 per month
Anything over 101 hours per week allows a monthly claim of £26
Claiming when you live at your business premises
If you use your business premises as a guest house, for instance if it’s a bed and breakfast, then you can use simplified expenses. This recognises the difficulty you might have in working out the split between personal expenses and business usage.
The amount you are able to claim for each month partly depends on how many people live on the premises. The flat rate is used to work out how much can be attributed to private use every month.
You’ll need to work out your total costs, then deduct the flat rate. Whatever is left over is what you are able to claim for as expenses.
Number of people living on the premises
deduct £350 per month from the total cost
deduct £500 per month from the total cost
Three or more inhabitants
deduct £650 per month from the total cost
To make things a little clearer, HMRC give an example:
You and your partner run a bed and breakfast and live there the entire year. Your overall business premises expenses are £15,000.
Flat rate: 12 months x £500 per month = £6,000
You can claim:
£15,000 – £6,000 = £9,000
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About The Author
A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.