Simplified expenses were introduced to make the process of working out how much tax relief you can claim on allowable business costs easier. We explain what simplified expenses are, what you can claim them for, and how to use them.
Simplified expenses are a way of working out how much tax relief you can claim for business expenses. Rather than calculating your actual costs in detail, using simplified expenses means you’ll work out your claim using flat rates which are set by HMRC. You might also see simplified expenses described as the flat rate method.
You don’t have to use simplified expenses to work out your business expenses. If it’s more beneficial for your business, you can claim tax relief on your actual costs instead.
Who can claim simplified expenses?
You can use simplified expenses to claim tax relief in your business if you operate as a sole trader or in a partnership. Limited companies (and business partnerships where one of the partners is a limited company) cannot use simplified expenses.
What can I use simplified expenses for?
You can use simplified expenses to work out your tax relief for:
Using a vehicle in your business
Costs if you work from home
Living in the same premises as your business
Simplified expenses for mileage if you use a vehicle for the business
Under simplified expenses you can claim ‘mileage’ by multiplying the number of business miles the vehicle travels by the flat rate the vehicle is eligible for. The rate is designed to include all of the running costs of the vehicle, but it’s still useful to work out your actual costs to make sure you don’t miss out on any tax relief!
Anything under 25 hours per month and you’re not able to use simplified expenses for your home working costs.
25 – 50 hours a month allows you to claim £10 per month
51 – 100 hours allows a claim of £18 per month
Anything over 101 hours per month allows a monthly claim of £26
Claiming when you live at your business premises
Working out the split between personal expenses and business usage can be particularly difficult if you live at your business premises – for instance if you run a Bed & Breakfast from your home – so you are entitled to use simplified expenses instead.
The amount you are able to claim 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 and claim whatever is left over as expenses.
Number of people living on the premises
Amount you can deduct per month from the total cost
Three or more inhabitants
You and your partner run a bed and breakfast and live there the entire year. Your overall business premises expenses are £15,000.
You can deduct £500 per month because there are two of you living at the property.