Simplified Expenses for the Self-Employed. Simplified expenses are flat rates set by HMRC to make claiming for certain expenses easier and quicker when filling out your self-assessment tax return.
Simplified expenses for the self-employed can really help make things easier when it comes to filling out your tax return.
You don’t have to use the simplified expenses method. It is optional and may not always be beneficial to reducing your tax bill. So you’ll need to check it on a case by case basis.
What are Simplified Expenses for the Self-Employed?
This is a way of working out some of your business expenses using a flat rate rather than the actual costs.
Simplified expenses save you the hassle of keeping receipts to support certain expenses but you must keep an eye on your actual costs.
If your actual costs are more than the flat rate, it may make sense for you to use those instead to reduce your tax bill.
HMRC sets out flat rates for:
- Business mileage for using your personal vehicle;
- Working from home;
- Living in your business premises.
For any other expenses you pay for in your business, you’ll need to use the actual amounts (and keep receipts).
Who Can Use the Simplified Expenses Method
- Self-employed individuals;
- Business partnerships in which none of the partners
Limited Companies cannot use the simplified expenses method.
Simplified Expenses for Business Mileage
If you use your personal vehicle for business travel, then you can claim a set amount against your taxes using HMRC simplified rate.
If you prefer you can use the actual method to claim for using your car. This means adding up the business percentage of:
- Buying a car, van or motorbike;
- Servicing fuel;
- Road tax.
You cannot claim for flat rate expenses if you have chosen to claim the cost of buying your vehicle. You’ll need to use capital allowances instead.
The flat rate set by HMRC reflects, not just the cost of fuel, but also the costs of running your vehicle and wear and tear. For that reason claiming simplified expenses for their vehicle if commonly used by the self-employed since they don’t need to keep any receipts or work out the business percentage of their car and its costs.
The flat rates are set on a per mile basis, the rates for tax years 2018/2019 and 2019/2020 are:
|Type of Vehicle||Flat rate per mile with simplified expenses|
|Cars and goods vehicles first 10,000 miles||45p|
|Cars and goods vehicles after 10,000 miles||25p|
You have driven 12,000 business miles in the tax year 2018/2019 in your personal car.
You can claim £5,000 against your taxes which is calculated like this:
- 10,000 miles x 45p = £4,500
- 2,000 miles x 25p = £500
- Total: £5,000
What Records Should You Keep
You need to keep a record of your business trip, keeping a record for each trip of:
- Miles travelled
- Reason for trip (for example customer or supplier name)
You can do this on a spreadsheet. Or if you travel on a regular basis, use the Quickbooks Self-Employed app which automatically tracks all your mileage as you drive around.
Simplified Expenses for Working From Home
You can claim an amount against your taxes if you work from home. This reflects the additional use of things like utilities.
You can choose to calculate a percentage of your household bills or use the simplified expenses flat rate.
Simplified expenses for working from home can only be used if you work more than 25 hours a month.
The flat rates set by HMRC for working from home are:
|Hours of business use per month||Flat rate|
|25 to 50||£10|
|51 to 100||£18|
|101 and more||£26|
In the tax year 2018/2019, you have worked 30 hours per month from home, but 70 hours during January.
You can claim £128 against your taxes for working from home.
This is calculated as:
- 11 months x £10 = £110
- 1 month x £18 = £18
- Total £128
The flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs.
Simplified Expenses if You Live at your Business Premises
When you live and work in the same place, an element of your own private use in the total running costs of your business premises.
This deduction applies to anyone who lives at their business premises. That’s businesses like pubs, bed and breakfasts and hotels.
You must make an adjustment to the total business running costs for your actual private use or use the simplified expenses method.
Under the rules of simplified expenses you must add up to running costs of your premises and subtract the personal use element.
You can then claim the remaining running costs against your taxes
The flat rates that you need to deduct for private use against the business premises costs are:
|Number of people||Flat rate per month|
You run a bed and breakfast and live there for the entire tax year 2018/2019. Your business premises costs are £13,000.
You must deduct £4,200 from your business running costs.
- £350 per month x 12 months = £4,200
You can claim £13,000 – £4,200 = £8,800 against your 2018/2019 taxes.
HMRC Simplified Expenses Checker
If you need some help figuring out whether you should claim the flat rate or for your actual costs, then use the HMRC Simplified expenses checker.
You need to enter all your actual costs into the checker and HMRC then automatically calculates how much you could claim under the flat rate method. That way you can work out which method reduces your tax bill the most.
Updated 29 May 2019