HMRC self-employed simplified expenses – a guide

Simplified expenses are a useful way for self-employed people to ease the pain of accounting and tax returns.

Bookkeeping and reporting can be complicated and arduous when you work for yourself. Thankfully though, for self-employed people with straightforward tax affairs, HMRC’s simplified expenses regime can make the process much easier and less time-consuming.

So what are simplified expenses, and who can use them?

HMRC simplified expenses – a quick-start guide

Simplified expenses give self-employed people the opportunity to calculate some of their allowable business expenses based on standard flat rates set by HMRC, as opposed to the potentially much more complicated prospect of working out exact expenditure.

Currently, simplified expenses flat rates can only be used for three types of business expense:

  • business-related vehicle costs
  • costs incurred by working from home
  • costs when you live in your business premises

The simplified expenses scheme may be suitable for those who have straightforward tax affairs and relatively few business expenses. However, it’s not right for everyone – it may be that calculating and reporting your exact expenditure actually saves you money.

And remember, for all costs other than the three types listed above, you’ll need to work out your exact expenses.

Simplified expenses can only be used by sole traders and business partnerships in which none of the partners is a company. If you’re set up as a limited company, or a partnership in which one or more of the partners is a company, you will not be able to use the simplified expenses scheme.

Simplified expenses and working from home

Expenses can be a nightmare for those running a business or freelancing from home. If you’re recording your actual expenditure you need to work out the proportion of your outgoings that are purely for business purposes, and this requires often complicated calculations about the number of hours you’re working and the rooms you’re using.

The simplified expenses scheme makes work-from-home expenses much easier to calculate. You can make use of simplified expenses provided you work from home at least 25 hours per month, and you can use it for rent, utilities, and other similar costs. You can’t, however, use it for internet or telephone expenses, for which you need to work out the actual proportion used for business purposes.

The work from home flat rates for the 2018/19 tax year are:

  • £10 per month if you work between 25 and 50 hours per month
  • £18 per month if you work between 51 and 100 hours per month
  • £26 per month if you work 101 or more hours per month

Simplified expenses mileage rates

Vehicle use is another area in which you can use simplified expenses. You can use flat mileage rates for car, vans, or motorcycles, saving you the hassle and time of calculating exact costs for the purchase and running of your vehicle.

But note that you can’t use the simplified expenses scheme for a vehicle for which you’ve already claimed capital allowances, or for which you’ve already included expenses as part of your calculation of business profits.

The simplified expenses mileage rates for the 2018/19 tax year are:

  • 45 pence per mile for cars and goods vehicles on the first 10,000 miles
  • 25 pence per mile for cars and goods vehicles over 10,000 miles
  • 24 pence per mile for motorcycles

Remember that this rate only applies to the use of these vehicles. If you’re making train journeys or using 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.

Finally, it’s important to note that once you start using the simplified expenses flat rates for an individual vehicle, you must continue to do so for as long as it’s being used for business purposes. However, you don’t have to use the flat rate scheme for all of your vehicles – if you have multiple vehicles used for work, you might choose to use the flat rate scheme for some, and exact costs for others.

Simplified expenses and living at your business premises

Some self-employed people live in their business premises – for example those running a bed and breakfast. In these cases you may also be able to use the simplified expenses scheme, based on flat rates. However, in these cases, the flat rate scheme works slightly differently.

If you’re living in your business premises, you use the flat rates to calculate a deduction from your total expenses related to the premises – so you still need to calculate your total exact costs, but you don’t have to work out the precise split between personal and business use. The simplified expenses flat rates for living in a business premises for the 2018/19 tax year are:

  • £350 per month if one person is living in the premises
  • £500 per month if two people are living in the premises
  • £650 per month if three or more people are living in the premises

For example, imagine that two people are living full-time in a bed and breakfast, and the total exact costs related to the premises are £20,000 per year. In this case, you would use the £500 per month flat rate multiplied by 12 months (making £6,000). You would then deduct this from the £20,000 costs, leaving £14,000. This is the figure that you can claim as business expenses.

Need some help with small business accounting?

As we said at the beginning of this article, the simplified expenses scheme isn’t right for everyone, and you may save some money by recording and reporting your exact costs. As with everything related to your business taxes, it’s important that you seek advice from a qualified accountant before making a decision.

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