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HMRC Simplified Expenses Explained

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Categories Self Employment Tax

Do you know what simplified expenses you can claim when you’re self-employed? Or even if you’re eligible? HMRC simplified expenses make claiming allowable business expenses easier for the self-employed using a flat rate, without the need to keep receipts. Read this guide to find out which expenses fall under simplified expenses and how to claim them when you fill in your tax return.

This guide is for self-employed business owners, different rules may apply if you have a Limited Company.

Table of contents

Updated 3 September 2021

1. What are HMRC Simplified Expenses?

Simplified expenses is a scheme set up by HMRC. It lets those registered as self-employed claim for certain expenses using flat rate amounts set by them, instead of rather than the actual amounts. It’s useful because it avoids the need to keep receipts and creates fairness amongst the sole trader community when it comes to expenses that can be more tricky. Only 3 types of business expenses are included in the simplified expenses scheme:

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

2. Who is Eligible to Use Simplified Expenses?

Simplified expenses are only available to people who are:

3. Simplified Expenses for Claiming Business Mileage

If you use your personal vehicle for work reasons, then you can use simplified expenses to claim a fixed mileage allowance per mile. The amount you can claim depends on whether you drive a car (electric or petrol), van or motorbike. The simplified expenses mileage rates for the 2021/2022 tax year are:

  • 45 pence per mile for cars and goods vehicles on the first 10,000 miles travelled (25 pence over 10,000 miles)
  • 24 pence per mile for motorcycles
  • 20 pence per mile for bicycles
  • 4p per mile for electric vehicles

The flat rate per mile reflects fuel as well as the additional costs of running your vehicle like:

  • Insurance;
  • Repairs;
  • Servicing;
  • Fuel;
  • Road tax;
  • General wear and tear on the vehicle.

You cannot claim for simplified expenses if you have chosen to claim to buying your car through your business and are claiming capital allowances on your tax return.

4. Simplified Expenses When You Are Working From Home

If you are self-employed and work from home, then your household bills are likely to be higher because you spend more time there. When you work from home, you can claim a percentage of your utility bills, mortgage interest or rent based on the space you are using. You can find out how to claim this and see an example in this guide to Claiming for Your Home Office.

To make things easier, you can claim a flat-rate amount for working from home as an allowable business expense. This is provided you work from home at least 25 hours per month. The working from home flat rates for the 2021/2022 tax year are:

  • £10 per month if you work between 25 and 50 hours per month;
  • £18 per month if you work between 51 and 100 hours per month;
  • £26 per month if you work 101 or more hours per month.

Simplified expenses do not cover internet and mobile phone. Therefore, make sure you claim separately along with other business expenses, if appropriate.

5. Simplified Expenses For Bed & Breakfast Owners

Some people live and work in the same place. For example, when they own a pub, bed and breakfast or hotel. When you live and work in the same place, there will be an element of private use from living in the premises. Since you cannot claim personal expenses on your tax return, you can use simplified expenses to work out a flat-rate amount you can deduct from your business costs to reflect the private use element.

The flat rate is based on the number of people living in the business premises and for the 2021/2022 tax year they are:

  • If one person lives in the business premises £350 per month
  • When two people live in the business premises £500 per month
  • If three or more people live in the business premises £650 per month

Example

You run a bed and breakfast and live there for the 2020/2021 tax year and your business premises costs are £13,000. Therefore, 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.

6. Should You Use HMRC Simplified Expenses?

Simplified expenses make things easier, especially if you are a sole trader with really simple tax affairs. But, you are not obligated to use simplified expenses and for some, it may not be beneficial financially. So, depending on your personal situation, it may make sense to claim for actual business expenses rather than the flat rate to generate a bigger tax saving.

The easiest way to do check whether simplified expenses is right for you is to use the simplified expenses checker on the .GOV website. You need to enter all your actual costs into the online form and then the checker automatically calculates how much you could claim.

7. How to Claim Simplified Expenses On Your Tax Return

You’ll need to claim for simplified expenses in the self-employment section of your tax return. If your business turnover is less than £85,000 for 2021/2022, you’ll have the option to fill in the simplified version of this part of the tax return so only need to enter your total expenses. You’ll need to include your claim in the figure you enter alongside your other allowable business expenses.

If your business turnover is more than £85,000, you’ll need to enter a breakdown of your expenses in the boxes set out by HMRC and you’ll need to include your claim for simplified expenses in the appropriate box

How to Claim for Simplified Expenses on Your HMRC Tax Return

Whatever your business turnover, you should keep a note of what you are claiming for and how you worked it out as part of your business records, in case of an HMRC investigation and they ask for evidence of what you are claiming for and what to check you’ve paid the right amount of self-employed tax.

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