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‘Simplified expenses’ are a method of calculating few of your business expenses using flat rates instead of working out your actual business cost.

With the help of simplified expenses, you can save your valuable time and avoid the difficulties you faced while calculating every single business cost.

By using these methods, you can split up the business expenses and personal expenses and work out whether simplified expense suits your business or not.

How Self-Employed Can Save Time Using ‘Simplified Expenses’?

Who can use simplified expenses?-

Simplified expenses can be used by –

  • Sole traders
  • Business partnerships (having no companies as partners)

It cannot be used by limited companies or business partnerships involving a limited company.

Types of simplified expenses-

You can use flat rates for the following things –

How to use simplified expenses?-

  1. For calculating business expenses, firstly record how many miles you drive your vehicle, how many hours you work at home per month and how many peoples living at your premises over the year. You must have this information so that you can easily calculate your business expenses at a flat rate and easily differentiate it with actual business cost.
  2. To work out your expenses, kindly use flat rate for vehicles, work from home & living at your business premises at the end of the tax year.
  3. You must include all these amounts in your expense total in your self-assessment tax year.

With the help of this, you can easily compare what you can claim using simplified expenses and what you can claim by calculating the actual business cost.

Business cost for vehicles

With the help of simplified expenses, you can easily calculate your motorcycle, car and van expenses instead of calculating the same as per actual cost of buying and running your vehicle.

If you have already claimed capital allowances or already include the expenses, you cannot claim simplified expense for a vehicle.

To claim business expenses for vehicles, you have to use flat rate to claim business mileage instead of claiming the actual cost of fuel and maintenance. HMRC sets out the following flat rates -

Table of vehicles as per flat rate

Vehicle Flat rate per mile (using simplified expenses)
Cars and good vehicles first 10,000 miles 45p
Cars and good vehicles after 10,000 miles 25p
Motorcycles 24p

For example- Calculation of Vehicle expenses

You have driven 13,000 miles over the year

First 10,000 miles = 10,000 miles *45p = £4500

Remaining 3000 miles = 3000 miles * 25p = £750

Result – You can claim £4500 + £750 = £5250

Note - You don’t have to use flat rates for all the vehicles you are using but once you used flat rate for a particular vehicle, you must continue to follow the same as long as you are using that vehicle.

Working from home

If you work from home, you can set-off your cost and work out how much claim you can make using a flat rate for number of hours you worked per month with the help of simplified rate.

It means you don’t have to split up your personal and business expenses. For example – There is no need to differentiate between home utility and business utility bills. It does not include telephone or internet charges. You can find the real cost of telephone or internet charges by working out its actual cost.

You can only use simplified expenses when you work for 25 hours or more in a month from your home. Flat rates for work from home are given below –

Table for work from home as per flat rate

Hours of work done monthly Flat rate per month
25 to 50 £10
51 to 100 £18
101 & more £26

For example – You worked 30 hours from home for 9 months but worked 65 hours during 3 months

9 months * £10 = £90

3 months * £18 = £54

Result – You can claim £90 + £54 = £144

Living in your business premises

A Small number of self-employed persons generally use their business premises as their homes. For example – A guesthouse, bed & breakfast, small care home etc. You can use simplified expenses to calculate the cost of personal & business premises per month at a flat rate rather than working out the difference between the costs you actually spend on your private & business premises. With the help of simplified expenses, you can easily calculate the total cost of premises.

Flat rate per month is based on the number of peoples living in the premises. Use the flat rates below and subtract the amount of flat rate per month from the overall cost of premises and claim the remaining as your business expenses.

Table of living in business premises as per flat rate

Number of people Flat rate per month
1 £350
2 £500
3+ £750

First example – You & your partner run a bed & breakfast and live there the entire year. Your overall business premises expenses are £20,000

Flat rate = 12 months * 500 per month = £6000

Result - You can claim £20,000 - £6000 = £14000

Note: If someone is living with you at your business premises for some months, you can deduct only the relevant flat rate as per months they live there.

Second example –You & your partner run a bed & breakfast and live there the entire year. Your child is at university for 8 months a year but comes back to live a home for 4 months in the summer. Business premises expenses are £20,000.

Flat rate for 8 months = 8 months * £500 per month = £4000 per month

Flat rate for 4 months = 4 months * £650 per month = £2600 per month

Total flat rates for 12 months = £4000 + £2600 = £6600 per month

Result – You can claim - £20,000 - £6600 = £13400

Conclusion

Simplified expenses makes your way easier as it calculates your some of the business expenses at flat rate. It saves your valuable time and avoids the hassles you faced while calculating every single business cost but it depends upon you to choose whether this system of calculating business expenses suits your business or not.

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