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Simplified Expenses: The Quick Way to Pay Less Tax

Simplified expenses, if you’re self-employed, is the easy way for you to claim for certain expenses without a receipt so you can pay less tax.

Not only that, it makes things easier when it comes to completing your tax return.

It’s not mandatory for you to use this method and it doesn’t benefit everyone.

In this post, I am going to show you how simplified expenses work so you can decide for yourself if it is right for you.

Friendly Disclaimer: The information contained in this article is for guidance and information purposes only. It should not be relied upon as professional accounting, tax and legal advice. For specific advice relevant to your own situation, always contact a professional.

What are HMRC Simplified Expenses?

Simplified expenses, if you’re self-employed, are a way to claim for certain expenses at a flat-rate set by HMRC (without a receipt) instead of working the actual amount.

Who Can Use Simplified Expenses

This easy way to claim allowable expenses is only available for people who are:

  • Self-employed individuals;
  • Are in business partnerships where none of the partners are Limited Companies.

If you operate through a Limited Companies you cannot use the simplified expenses method.

What Types of Expenses are Covered

You can use flat rates to claim for the costs of:

  • Business mileage when you use your personal vehicle;
  • Your home office if you work from home;
  • Living in your business premises.

Let’s look at each one to see what you can claim.

How to Claim Simplified Expenses

Business Mileage

If you use your personal vehicle for business travel, then you can claim a set amount against your taxes using HMRC simplified expenses rate.

The flat rate reflects, not just the cost of fuel, but also the costs of running your vehicle and wear and tear.

That makes using the simplified expenses method easy for self-employed and sole traders. Otherwise, you would need to keep receipts for things like:

  • Insurance;
  • Repairs;
  • Servicing;
  • Fuel;
  • Road tax.

Then add them up and work out the business percentage that you can claim as an allowable expense against your taxes.

You cannot claim for flat-rate expenses if you have chosen to claim the cost of buying your vehicle and claimed capital allowances.

The flat rates are set on a per-mile basis. Here are the current simplified rates:

Type of VehicleFlat rate per mile with simplified expenses
Cars and goods vehicles first 10,000 miles45p
Cars and goods vehicles after 10,000 miles25p
Motorcycles24p

Example:

You have driven 12,000 business miles in the tax year 2019/2020 in your personal car.

You can claim £5,000 as an allowable business expense which is calculated like this:

  • 10,000 miles x 45p = £4,500
  • 2,000 miles x 25p = £500
  • Total: £5,000

What Records Do You Need to Keep

You need to keep a record of your business trip, keeping a record for each trip of:

  • Date
  • Location
  • 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, try the Quickbooks Self-Employed App which automatically tracks all your mileage as you drive around.

Before you claim for business mileage against your taxes make sure you are clear what trips count as business trips by reading my Guide to Claiming Business Mileage.

Working From Home

If you work from home then you can claim a simplified amount against your taxes.

Simplified expenses for working from home can only be used if you work more than 25 hours a month.

The HMRC for working from home flat rate are:

Hours of business use per monthFlat rate
25 to 50£10
51 to 100£18
101 and more£26

Example:

In the tax year 2019/2020, 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 worked out as:

  • 11 months x £10 = £110
  • 1 month x £18 = £18
  • Total £128

The flat rate doesn’t include telephone or internet expenses. So make sure you claim for the business portion of those costs against your tax bill to reduce your tax bill even further.

Again, you are not obligated to use the flat rate if you work from home. You can also calculate a percentage of your actual household bills.

You can read my guide to Claiming for Your Home Office here to help you more with your claim.

Living in Your Business Premises

When you live and work in the same place, an element of your own private use is included in the total running costs of your business premises. That’s businesses like pubs, bed and breakfasts and hotels.

You’re likely to be sharing things like electricity or water for example.

When it comes to allowable expenses, you are only allowed to claim for business expenses against your taxes. Nothing personal.

So if you live in your business premises you are going to need to split out your personal portion of the bills.

That could be tricky!

By using simplified expenses you can deduct an amount for your private use by using HMRC flat rate.

You’ll need to start by adding up the running costs of your premises and then subtracting the simplified flat rate.

The current simplified rates are:

Number of peopleFlat rate per month
1£350
2£500
3 +£650

Example:

You run a bed and breakfast and live there for the entire tax year 2019/2020. 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 as an allowable expense against your tax bill.

Should You Use Simplified Expenses?

As I’ve mentioned, you are not obligated to using the simplified flat rates above.

For some people who are self-employed or are sole traders, their actual costs may actually be more than the flat rates available.

So it is worth having an understanding of your actual costs otherwise you could lose out on tax savings.

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 online checker and HMRC then automatically calculates how much you could claim under the flat rate method. That way you can check which method reduces your tax bill the most.

Updated 1 January 2020

Go Self-Employed is a UK content hub for self-employed folks who want to get to grips with their business finances and plan for a better financial future.

Anita Forrest
About Anita Forrest

Anita is a Chartered Accountant with over a decade of working with small business owners. She is the creator of the ‘Go Self Employed’ website, where she simplifies complicated self-employment topics such as taxes, bookkeeping, banking and insurance.