If you’re self-employed or run a small business in the UK, managing your expenses is an important part of saving money on taxes. One way to make this easier is by using simplified expenses. These are flat rates set by HMRC, so you don’t have to work out exact costs or keep loads of paperwork. Let’s break down the different types of simplified expenses you can claim and how they work.
What Are Simplified Expenses?
Simplified expenses allow small business owners and self-employed workers to claim certain costs using standard rates instead of working out actual costs. This method saves time and reduces the amount of paperwork needed to prove your expenses.
Who Can Use Simplified Expenses?
You can use simplified expenses if you’re:
- Self-employed
- A business partnership where none of the partners is a company
Now, let’s explore the types of expenses you can claim using this simplified method.
Types of Simplified Expenses You Can Claim
1. Home Office Expenses
If you work from home, you can claim a flat rate to cover your home office costs. Instead of calculating the exact percentage of rent, utilities, or internet used for work, HMRC allows you to use a flat rate based on the number of hours you work from home each month.
Flat Rate for Home Working:
- 25 to 50 hours a month: £10
- 51 to 100 hours a month: £18
- 101+ hours a month: £26
Example:
If you work from home for 60 hours in a month, you can claim £18 for that month instead of working out exact electricity or heating costs.
2. Business Vehicle Expenses
If you use a car, van, or motorcycle for business, you can claim a flat rate per mile for vehicle use. This means you don’t need to calculate the actual fuel costs, repairs, or insurance. You just keep a record of the miles you travel for work and apply the standard mileage rate.
Flat Rate for Vehicles:
- Cars and vans: 45p per mile for the first 10,000 miles, then 25p per mile
- Motorcycles: 24p per mile
Example:
If you drive 8,000 miles for business in your car during the year, you can claim 8,000 miles x 45p = £3,600.
3. Expenses for Living on Your Business Premises
If you run your business from home or live on your business premises, like a guest house or bed and breakfast, you can claim a flat rate for your living costs. The amount depends on how many people live at the premises.
Flat Rate for Business Premises:
- 1 person: £350 per month
- 2 people: £500 per month
- 3 or more people: £650 per month
Example:
If you and your partner live on the premises of a guest house you run, you can claim £500 per month for living costs.
Benefits of Using Simplified Expenses
- Saves time: No need to calculate exact costs.
- Less paperwork: Fewer receipts and records needed.
- Easy to apply: You simply multiply the flat rate by the number of applicable hours, miles, or months.
When Should You Use Simplified Expenses?
Simplified expenses are designed to make things easier, but they’re not always the most cost-effective. For example, if your actual vehicle or home office costs are higher than the flat rates offered by HMRC, you may save more by calculating your exact costs instead of using the simplified method.
It’s important to compare both methods (simplified vs. actual costs) to see which one gives you the bigger tax deduction. For a more accurate comparison, speak with a tax professional.
Conclusion
Simplified expenses are a great way for UK taxpayers to claim common business costs without the hassle of detailed record-keeping. Whether it’s home office expenses, vehicle mileage, or living costs on business premises, these flat rates make tax time easier. Always remember to keep accurate records of your hours, miles, and months to ensure you’re claiming the correct amounts.
Key Takeaways:
- Home office expenses: Flat rates for working from home based on hours.
- Business vehicle expenses: Mileage rates for cars, vans, and motorcycles.
- Living costs for business premises: Flat rates based on the number of people living there.
Simplified expenses save you time and paperwork, but always check whether they give you the best tax benefit. If you’re unsure, consider consulting a tax expert to find out what’s best for your situation.
FAAS accountants have helped many businesses to optimise their taxes. Contact us in confidence to see how we can help.