Simplified expenses are a way of calculating some of your business expenses using flat rates instead of working out your actual business costs.
You do not have to use simplified expenses. You can decide if it suits your business.
What Are Simplified Expenses?
Simplified expenses are a great way for the self-employed (or business partnerships that have no companies as partners) to take some of the complexity out of accounting and tax returns.
The simplified expenses system allows you to calculate some of your allowable business expenses based on standard flat rates set by HMRC rather than having to work out exact expenditure.
It is not mandatory that you use simplified expenses.
They are an option that may be available and if you are eligible, it is for you to decide if the system suits you and your business.
Simplified expenses cannot be used by a limited company or a partnership in which one or more of the partners is a company.
What Can Simplified Expenses be Used to Calculate?
The Simplified Expenses flat rates can be used for following types of business expense but remember that for other costs, you will need to calculate exact expenses.
- Business-related costs for some vehicles
- Costs associated with working from home
- Costs incurred when you live in your business premises
The simplified expenses scheme may provide the simplest way to calculate your expenses but it is worth remembering that in some cases it may be more tax-efficient for you to calculate your exact expenditure.
Simplified Expenses for Vehicle Costs
Using simplified expenses flat rates can save you from having to calculate the exact costs for the purchase and running of your vehicle. In this context, the best example of what you can use simplified expenses would be for when claiming for mileage allowances.
Approved mileage rates from tax year 2011/12 to present date:
|From tax year 2011/12 onwards
||First 10,000 business miles in the tax year
||Each business mile over 10,000 in the tax year
|Cars & Vans
These rates only apply to the type of vehicles listed above. If you use the train or other transport solely for business purposes, you can also claim the cost of these as allowable expenses – but you’ll need to work out the exact cost.
Remember that if you use the simplified expenses flat rates for a specific vehicle, you must continue to do so for as long as it’s being used for business purposes, but you can choose different procedures for different vehicles... you may find that calculating exact costs works better for some but whatever you choose, you need to stick to the same process for any particular vehicle.
Simplified Expenses When Working From Home
Calculating the exact business expenses associated with working from home can be complicated.
It takes time to work out the proportion of your costs that are attributable to the business so the flat rates associated with the simplified expenses scheme may be an attractive alternative.
As long as you work from home for over 25 hours per month you can use simplified expenses for things such as property costs (rent), utilities and other similar costs (not including internet or phone expenses).
The current work from home flat rates are as follows:
|Hours of Business Per Month
||Flat Rate Per Month
|25 to 50
|51 to 100
|101 or more
Here is a handy example from the Gov.uk website:
You work 40 hours from home in 10 months but worked 60 hours during 2 particular months:
- 10 months x £10 = £100
- 2 months x £18 = £36
- Total claim = £136
It is worth using the Simplified Expense Checker to compare what you can claim through simplified expenses with what you could claim by working out the actual costs.
Simplified Expenses & Living at Your Business Premises
You may run a business where you also live on the business premises; good examples of this would be a guesthouse, B&B, care home or public house.
You can use the Simplified Expenses flat rates to calculate a deduction from your total expenses related to the premises, this means that you will not need to spend time splitting what you spend the business and on your private use of the premises.
|Number of People
||Flat Rate Per Month
Here's a handy example from the Gov.uk website:
You and your partner run a bed and breakfast and live there the entire year. Your overall business premises expenses are £15,000.
Flat rate: 12 months x £500 per month = £6,000
You can claim:
£15,000 - £6,000 = £9,000
If someone lives at your business premises for part of the year, you can deduct only the relevant flat rate for the months they live there.
You and your partner run a bed and breakfast and live there the entire year. Your child is at university for 9 months a year but comes back to live at home for 3 months in the summer.
Flat rate: 9 months x £500 per month = £4,500
Flat rate: 3 months x £650 per month = £1,950
Total = £6,450
You can claim:
£15,000 - £6,450 = £8,550
Use the Simplified Expense Checker to compare what you can claim using simplified expenses with what you can claim by working out the actual costs.
So, that's your guide to simplified expenses if you're self-employed. Not too bad right? Check out the Knowledge Hub for more helpful guides on all things tax and business.
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