What are simplified expenses?

 

I’m sure that you’ve heard this term bandied about a fair bit, and not really taken much notice.  But what are they?

Basically, they are an easy way of calculating some of your business expenses, using rates set by HMRC, rather than actually working out your business costs. Just a little helping hand, to make calculating expenses that little bit easier.

You don’t have to use them if you don’t want to, it’s totally up to you.  If it suits your business to use them, great, fire away!

Don’t forget though, this doesn’t completely cancel the need to keep records, you still need to do that. But, it will certainly give you less records to keep throughout the year.  (Definitely an advantage in my book..).

 

For those who want to use simplified expenses, here’s the basics:

First of all, who can use them?

Well, they can be used by sole traders, and business partnerships that have no companies as partners. They can’t be used by limited companies, or business partnerships involving limited companies.

 

You can use them to calculate:

Business costs for vehicles

Living in your business premises

Working from home.

 

In a nutshell, here’s how you do it:

Record the following:

  • How many hours you work at home
  • How many people live at your business premises
  • How many business miles you travel in a year

 

Then:

Use the following flat rates to calculate your expenses.

Cars and goods vehicles – The first 10,000 miles                        45p per mile

Cars and goods vehicles – Any mileage after 10,000 miles       25p per mile

Motorcycles                                                                                          24p per mile

 

For example, you drive 12,000 miles for your business.

Calculation:

10,000 miles x 45p =       £4,500

2,000 miles x 25p   =       £500

 

Total motor expenses = £5,000

Calculate your actual expenses for running your vehicle.  How does it compare? Would simplified expenses be a good fit for your business?

Top Tip:

You don’t have to use the simplified expenses calculation for every single vehicle, but, once you’ve used the flat rate for a vehicle, you must then carry on doing so until that vehicle is changed.  And please remember, keep a mileage log!  There are plenty of apps out there nowadays, which will do an admirable job of this for you.  Apps not your thing?  Use a notebook, or spreadsheet.  Just please, remember to keep the mileage log.

With regards to multiple vehicles, it’s totally up to you how you claim the expenses.  You can use simplified expenses for the first, and actual costs for the second.  Whatever works out better for you, and your business.

 

Working from Home

If you work for 25 hours per month or more from home, you can use the simplified expenses method if you wish.

Hours of Business use per month    Flat Rate Per Month

25 to 50                                                                 £10

51 to 100                                                                £18

101 and over                                                         £26

Top Tip:

These rates don’t include telephone or internet expenses, so simply claim the business proportion of these by calculating the actual costs.

It’s worth noting, that if you have one room dedicated to your business, then using the flat rate scheme will not necessarily be the best fit for you.  Consider calculating the actual costs instead, and claiming those.

 

What about if I live in my business premises?

I’m thinking bed and breakfast, small care home, guest houses here.

There’s a decent chance that you will live in the same building, and this is where it can get a little tricky.

To keep it simple, the building will more than likely be mainly business use, so it’s more a case of adding back expenses to the expenses, rather than claiming them.

HMRC guidance states that:

If there is one person living at the premises, a figure of £350 is added back for personal use.

Two people, and it becomes £500.

Three people, and it becomes £650.

This calculation is based upon a pro rata system, so, if two people only live there for 6 months, £3000 is added back for personal use of the premises.

 

 

HMRC have a decent simplified expenses checker, try it, and see how you compare!

HMRC Simplified Expenses Checker