Simplified expenses are just that – a simpler way to calculate the expenses that you can claim on your self-assessment. If you are a sole trader, you can use this instead of calculating each expense down to the penny.
Simplified expenses uses a flat rate instead of the actual expense amount. It’s therefore much quicker to calculate, however, you would need to review this to make sure you’re not losing out, as the flat rates may be less than your actual expenses. HMRC has a simplified expenses checker to help you make this choice. Whichever way you choose to calculate your expenses, you must use the same method each year, you can’t swap between them without a very good reason.
There are flat rates for:
- Business costs for vehicles
- Working from home
- Living in your business premises (eg bed and breakfast)
All other expenses still need to be calculated from the actual costs.
How to use Simplified Expenses
Although simplified expenses makes bookkeeping easier, you still need to record evidence of your expenses, such as mileage, as you would if you were to calculate the actual costs.
At the end of the year, you use the flat rates provided by HMRC to calculate your expenses instead of using the actual costs incurred.
The calculations using flat rates are what you then enter onto your self-assessment.
Simplified Expenses for Cars and Vehicles
Instead of recording all your vehicle running expenses, such as fuel, insurance and maintenance, you would use a flat rate for the number of miles you have driven instead.
The current rates for simplified vehicle expenses are:
- Cars and vans – 45p for the first 10,000 miles
- Cars and vans – 25p for after 10,000 miles
- Motorcycles – 24p
Example of using Simplified Expenses for Mileage (from HMRC)
You’ve driven 11,000 business miles over the year.
10,000 miles x 45p = £4,500
1,000 miles x 25p = £250
Total you can claim = £4,750
All other travel expenses, such as parking and train journeys can be claimed on top of this.
Simplified Expenses when you Work from Home
If you work from home you need to calculate your expenses based on the proportion of the time you use your home as your place of work. Or, you can use the flat rate provided by HMRC for simplified expenses.
Proportional Method for Calculating Expenses if you Work from Home
You can claim expenses for:
- Council Tax
- Mortgage interest or rent
- Internet and telephone use
You will need to find the most reasonable method to calculate the proportion of the costs that you can claim. This can be based on the number of hours you work from home or the number of rooms that you use for your business.
Example of using the Proportional Method to Calculate Expenses if you Work from Home (from HMRC)
You have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).
If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).
Flat Rate Method for Calculating Expenses if you Work from Home
You can only use the flat rate method if you work 25 hours or more each month from home.
The current rates for the flat rate method are:
- 25 – 50 hours – £10
- 51 – 100 hours – £18
- 101 plus – £26
These rates don’t include telephone or internet expenses, which you would need to calculate using the proportional method.
Example of using the Flat Rate Method to Calculate Expenses if you Work from Home (from HMRC)
You worked 40 hours from home for 10 months, but worked 60 hours during 2 particular months:
10 months x £10 = £100
2 months x £18 = £36
Total you can claim = £136
How to claim expenses on your self-assessed tax return.
You need to keep records of all your expenses and what they were for. This can be on a spreadsheet, in an app or accounting software package. These records need to be kept for 6 years plus the current year and you will need to consider how they are backed up in case of emergency. You also need to ensure that your records are accurate.
If your turnover is below £83,000, you can choose to put the total figure of all your expenses on your self-assessed tax return. Otherwise, you will need to separate them out into totals for each of the following categories:
- Cost of goods sold
- Car, van and travel expenses (not including private use)
- Wages, salaries and other staff costs
- Rent, rates, power and other insurance costs
- Repairs and maintenance of property and equipment
- Accountancy, legal and other professional fees (this includes hiring a bookkeeper)
- Interest and bank and credit card etc financial charges
- Phone, fax, stationery and other office costs
- Other allowable business expenses
You also need to have registered your business with HMRC and set yourself up for online self-assessment. Then when you are ready, you log in to your account and answer the questions to complete your self-assessment.
How can I help you with your business expenses?
I love taming those unruly numbers and ensuring everything is where it should be. The feeling I get when everything balances is just pure joy.
If you would like help getting your expenses in order, I offer a 1:1 Help and Advice session where we can discuss any questions you may have.
Or, I could do your bookkeeping for you. My bookkeeping packages include:
- A 30-minute consultation to discuss your current processes and needs and how I can help you with your business
- Collation of all your financial data and recording these transactions
- Bank reconciliation (matching your financial transactions to your bank statements)
- Regular communication with you to keep you up to date with my work
- Help and advice support by email