Simplified Expenses: A Simple Guide for Tax Returns
If you're just starting out on your own or running a small business, all the tax stuff can feel a bit overwhelming. One way to make things easier when you complete your Self Assessment is by using something called simplified expenses.
What Are Simplified Expenses?
Simplified expenses are a way for self-employed people and small businesses to work out some of their business costs using flat rates set by the government, instead of tracking every single receipt.
Rather than adding up every gas bill, every tiny bit of home electricity, and each fuel receipt, you use fixed rates (for things like business mileage and working from home) to calculate your allowable expenses. That means fewer sums and less paperwork for you.
Who Can Use Simplified Expenses?
You can usually use simplified expenses if:
- You're self-employed (a sole trader), or
- You're in a business partnership where all partners are individuals.
You generally can’t use simplified expenses if you trade through a limited company or LLP.
Which Costs Can Be Simplified?
You can use simplified expenses for some, but not all, business costs. Common examples are:
- Business mileage in cars, vans or motorcycles
- Working from home as a self-employed person
- Living at your business premises (for example, if you live above your shop)
For other costs (like stock, advertising, software, phone, etc.), you still claim the actual amounts you’ve spent.
Typical Flat Rates (Examples)
Here’s how the flat-rate method often works in practice. The exact figures can change over time, so always check the current rates before you file.
1. Business Mileage
| Vehicle Type | Flat Rate | Notes |
|---|---|---|
| Car or Van | 45p per mile (first 10,000 miles) 25p per mile (after 10,000 miles) |
Used instead of claiming fuel, servicing and other running costs. |
| Motorcycle | 24p per mile | For business journeys only. |
| Bicycle | 20p per mile | If you use a bike for business travel. |
2. Working From Home (Self-Employed)
For self-employed people working from home for at least 25 hours a month, there is a flat-rate system based on the number of hours you work from home each month.
| Hours Worked at Home (per month) | Flat Rate (per month) |
|---|---|
| 25 – 50 hours | £10 |
| 51 – 100 hours | £18 |
| 101+ hours | £26 |
This flat rate is meant to cover things like heat, light and power. You can still claim separate business costs that are clearly just for work (like a dedicated business phone line).
3. Living at Your Business Premises
If you live where you run your business (for example, above a shop or in a guest house), there are also flat rates you can use each month based on how many people live there. These rates replace some of the detailed splitting of household and business costs.
How to Use Simplified Expenses
- Track your usage, not every bill:
- For vehicles – keep a log of your business miles.
- For working from home – note your hours worked from home each month.
- Apply the flat rates: Multiply the relevant flat rate by your miles or hours.
- Add to your Self Assessment: When you complete your Self Assessment tax return, enter these totals in the expenses section instead of detailed individual costs.
Why Use Simplified Expenses?
- Less admin: You don’t have to keep every tiny receipt for fuel or home electricity.
- Quicker calculations: Flat rates make it easier to work out your total allowable expenses.
- More time for your business: Less time on spreadsheets, more time earning.
Things to Watch Out For
- Check which method is best: Sometimes claiming actual costs could give you a bigger deduction than the flat rate, especially if your running costs are high.
- Be consistent: Once you choose simplified expenses for a vehicle, you normally have to stick with it for that vehicle in future years.
- Keep basic records: Even with flat rates, you still need records of miles driven and hours worked from home in case HMRC asks.
- Rates can change: Always check the latest guidance before submitting your return.
In Summary
Simplified expenses are designed to make life easier for self-employed people and small businesses. By using flat rates instead of tracking every single bill, you can save time and still claim reasonable business costs on your Self Assessment tax return.
If you’re ever unsure whether simplified expenses are right for you, it can be worth speaking to a tax professional or using helpful online tools to compare the flat rates with your actual costs.
