What are Simplified Expenses

Simplified expense is a scheme set up by HMRC to help sole traders and business partnerships claim certain expenses using a flat rate rather than working out the actual amounts, which can be tricky to calculate. This scheme cannot be used by limited companies or business partnerships involving limited companies.

The three types of business expenses included in the scheme are:

1. Business mileage when you use your personal      vehicle
2. Home office if you work from home
3. Living in your business premises

You claim simplified expenses without needing to keep receipts. This does not completely cancel the need to keep records and receipts, but it will help reduce it.

Working From Home:

You can use this method if you work a minimum of 25 hours a month from your home.

You need to record the number of hours you work from home each month to calculate how much you can claim.

Hours of Business use per month Flat Rate Per Month

25 to 50 £10

51 to 100 £18

101 and over £26

Example

You worked 35 hours from home for ten months but worked 65 hours during two particular months:

10 months x £10 = £100

2 months x £18 = £36

The total you can claim = £136

The working from Home rate does not include telephone or internet expenses. You can claim the business proportion of these by calculating the actual costs.

Vehicle costs:

You need to record the number of miles and multiply this by the flat rate. Suppose your mileage is over 10,000 the flat-rate amount changes. There are plenty of mileage tracker app that will help keep a log. Alternately you can use a notebook or spreadsheet.

Vehicle flat rates to calculate your expenses.

Cars and goods vehicles – The first 10,000 miles 45p per mile

Cars and goods vehicles – Any mileage after 10,000 miles 25p per mile

Motorcycles 24p per mile

Example

You’ve driven 11,000 business miles over the year.

10,000 miles x 45p = £4,500

1,500 miles x 25p = £375

The total you can claim = £4,875

You do not have to use the calculation of the simplified expense for every vehicle, but you must carry on doing so until that vehicle is changed once you have used the flat rate for a vehicle. If you have multiple vehicles, it is totally up to you how you claim the expenses. You can use simplified expenses for the first and actual costs for the second. 

Living in your business premises

Some businesses use their business premises as their home, for example, a guesthouse, bed and breakfast or small care home. With simplified expenses, you calculate the total expenses for the premises.

Then use the flat rates to subtract an amount for your personal use of the premises, based on the number of people living on the premises and claim the rest as your business expenses.

Flat rate added back for personal use.

One person – £350 

Two people – £500

Three people – £650

Example

You and your partner run bed and breakfast and live there the entire year. Your overall business premises expenses are £16,000.

Flat rate: 12 months x £500 per month = £6,000

You can claim:

£16,000 – £6,000 = £10,000

This calculation is based upon a pro-rata system, so if two people only live there for six months, the flat rate would be £3000.

Simplified expenses are so much easier to use than calculating your actual costs. 

It may sometimes mean that you claim less than you would normally do if you used actual expense. It is worth also calculating the actual cost and doing the option that works out better for you and your business.

HMRC also has a simplified checker on their website to see if the simplified expense option could save your business money.