Business expenses for the self-employed: Simplified expenses

There’s more than one way to work out some of your business expenses. Simplified expenses is a way of using flat rates instead of calculating your actual business costs, you don’t have to use them, you can decide if it suits you and your business.

Simplified expenses can’t be used by limited companies or business partnerships involving a limited company, they can only be used by sole traders and partnerships that don’t have limited companies as partners.

What types of expense can you use flat rates for?

There are three types;

  1. Business cost for vehicles,
  2. Working from home; and
  3. Living in your business premises

All other expenses must be calculated by working out the actual costs.

Business costs for vehicles

If you use your vehicle for both business and private journeys there are two ways of working out your expenses; the actual cost method and the simplified expenses scheme.

The actual cost method

If you choose this method you must keep records of all your running and maintenance costs, for example insurance, servicing and repairs, tyres, MOT and breakdown membership. You’ll also need to keep details of your mileage so you know your total mileage for the period as well as the annual mileage. You also need to keep a log of all the business journeys and the business miles travelled. Once you’ve worked out how many business miles you’ve done you need to work out what percentage that is of the total mileage, this percentage is then applied to the costs to apportion them between business & private.

Using Simplified Expenses

Let’s now look at the simplified expenses method. Sometimes called the flat rate method, this method is based on your business mileage instead of claiming the actual business-related portion of the cost of buying and running your vehicle. It’s important to note, if you’ve previously claimed a capital expense for the purchase of the vehicle you can’t use simplified expenses for that vehicle.

To calculate the expense using simplified expense you’ll need to keep a record of the business journeys and the number of business miles you travel. The flat rate is then applied to this total.

When using the flat rate you won’t need to keep records and receipts of your vehicles actual running costs like servicing and repairs or insurance and fuel the flat rate covers the whole cost of buying, running and maintaining the vehicle so you can’t claim a capital allowance for the purchase of the vehicle.

Remember, simplified expenses are optional. You might want to keep all these records and receipts at first, you can then work out whether using simplified expenses or actual cost works better for you and your business. You might also need to keep records and receipts for other reasons such as VAT.

Once you’ve chosen a method to work out your vehicle expenses you must stick with it all the time that that vehicle is used in your business you can’t change from one method to the other.

Working from home

Using simplified expenses scheme when working from home is based on the number of hours spent working at home. It is much simpler, instead of having to work out exactly how much of your utility bills relate to your business this should make it quicker and easier to work out your expenses.

You can only use simplified expenses if you work at least 25 hours per month at home and you’ll need to keep a record of how many hours you work at home each month on core business activities. The amount you can claim depends on how many hours you work at home each month, as well as claiming the flat rate for utility bills you can also claim the business proportion of your home telephone and internet’s costs as these aren’t included in the flat rate expenses.

You may also be able to claim for certain fixed costs such as council tax, insurance, and mortgage interest where an identified proportion can be attributed to business use.

Living in your business premises

There’s also a scheme for private use of business premises that you can use for a home, for example if you’re in a guest house or a B&B. For further information on what you can claim in this scenario please get in touch. There are also more resources available on GOV.UK

As found on Youtube