What are simplified expenses?

Simplified expenses can be used by sole traders and some partnerships to reduce their administration, and save time when calculating allowable expenses. The system uses a flat rate for three specific types of expense - vehicle costs, working from home, and living in business premises.

It makes calculating the figures for your tax return much easier, so let’s look at how simplified expenses can be put to use.

Vehicle costs

If you use a car, van, or motorbike in your business, you can use a flat rate mileage to work out your costs unless you’ve claimed capital allowances for the vehicle. If you use more than one vehicle you can use different methods for each one, but once you choose a method you must continue using it throughout the vehicle’s ‘life.’

• The mileage rate for cars and goods vehicles up to 10,000 miles is 45p per mile
• Cars and goods vehicles over 10,000 miles is 25p per mile
• The mileage rate for motorcycles is 24p per mile

Working from home

Your working from home expenses are calculated using the number of hours you work from home each month, but you must work from home for a minimum of 25 hours per month to use the scheme.

• 25-50 hours per month: you can claim £10 per month
• 51-100 hours per month: you can claim £18 per month
• 101 hours or more per month: you can claim £26 per month

Any phone or internet costs can’t be calculated using simplified expenses, however, and you’ll need to use the actual cost method instead.

Living in your business premises

If you run a guesthouse or bed and breakfast, or maybe a small residential care home, and live on the premises, you may be able to use simplified expenses to calculate your costs for tax.

In this instance it works by calculating your total expenses for personal and business use combined, and then deducting a flat rate depending on the number of people living there. This leaves you with your figure to claim for business expenses.

• If one person lives in the premises, you should deduct £350 per month
• If two people live in the premises, you should deduct £500 per month
• If three or more people live in the premises, deduct £650 per month

Why use simplified expenses?

Simplified expenses can help you save time and effort in working out your business costs for your tax return. If you used the actual cost method for your vehicle expenses, for example, you would have to calculate and keep a running total of all related costs, including servicing, repairs, and insurance.

As far as working from home costs are concerned, you’d work out and split your utility costs into those for personal and business use - a much more complicated and time-consuming process.

Simplified expenses make it easier to calculate certain business expenses. If you don’t have much time available for this type of admin and just want to make the process quicker, using simplified expenses could be a good choice.

If you’re interested in using simplified expenses in your business, it’s worthwhile seeking guidance from a qualified accountant - they’ll advise on whether it’s a good idea for your particular business, and help with the calculations if necessary.

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