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Submitting Self-assessment tax return form is not the most enjoyable activity for anybody but it can be a real nightmare for the self-employed. It is especially difficult if you are using something for both personal and business purposes as you have to calculate the proportion of the amount that you have used exclusively for the business purposes.

It does not sound like fun at all but luckily HMRC offers a helping hand: sole traders and business partnerships can use simplified expenses to calculate how much they can claim for certain common types of business expenses.

What are simplified expenses?

Simplified expenses are flat rates, which self-employed workers can use to calculate their business expenses instead of working out the actual costs. This method of calculating expenses can help save time and energy as it is usually hard to separate business and private expenses and in order to do so one has to store a large amount of paperwork. When using flat rates, it is enough to record only a couple of things.

The usage of simplified expenses is not mandatory. The sole trader has to decide if it suits their business.

Who can use simplified expenses

Simplified expenses can be used by:

• sole traders
• business partnerships that have no companies as partners

It cannot be used by:

• limited companies
• business partnerships involving a limited company.

Can you use simplified expenses for all type of expenses?

There is a number of self-employment expenses that can be claimed back at the end of the year. For most of it, you have to calculate the actual costs and there is no way around it.

However, there are three type of expenses for which you can use flat-rate for (simplified expenses):

• costs of running a business vehicle
• expense of working from home
• expense of living at one’s business premises

How to use simplified expenses?

Simplified expenses are super easy to use! In contrary to other type of expenses, for these three type of expenses, you do not have to collect loads of receipts. All you have to do is to record:

• business miles per year
• the hours you spend working at home per month
• how many people live at your business premises throughout the year

At the end of the tax year when you are filling in the Self Assessment tax return, you have to use the flat rates for vehicles, working from home, and living at your business premises to work out your expenses and include these amounts in the total expenses line.

Simplified expenses checker

If you are not sure that simplified expenses are beneficial for you try using this simplified expense checker. It will show you the difference of what you can claim when calculating the actual costs or when using simplified expenses.

Calculating expenses: vehicles

Flat rate can be used for calculating expenses for a car, van or motorcycle. Purchasing and servicing of the vehicle, insurance, repairs and fuel are among expenses that can be claimed.

Flat rates:

• cars and vans can claim a flat rate of 45p per mile for the first 10,000 miles
• cars and vans can claim a flat rate of 25p per mile after 10,000 miles
• motorcycles can claim 24p per mile

In case you are using more than one vehicle for business, it is not obligatory to use the flat rate for all of them. However, if you make a decision to use the flat rate on one of your vehicles, you must continue to use it for that vehicle as long as you use it for your business.

Important! If you wish to claim simplified expenses for a vehicle, the vehicle cannot already be included in your general business expenses and you cannot have already claimed capital allowance for the vehicle. Other travel expenses like public transport can still be claimed.

Example.
You are using a business vehicle that run 20,000 business miles throughout the year. At 45p per mile for the first 10,000 miles and 25p for every mile after, the calculation would be as follows:

10,000 x 45p = £4500
10,000 x 25p = £2500
Total to be claimed: £7000

Calculating expenses: working from home

You can use flat rate when calculating expenses incurred while working from home. It can make your life much easier as you will no longer have to spend hours trying to calculate the business proportion of your home expenditure.

But there is one important condition for you to be able to use simplified expenses: in order to be eligible to use the flat rate, you will have to be working from home for the period of minimum 25 hours per week.

Flat rates:

• working 25 to 50 p/m hours from home: £10 per month
• working 51 to 100 p/m hours per month: £18 per month
• working more than 101 hours p/m: £26 per month

Important! You cannot use flat rate for calculating phone or Internet bills. You will have to work out the actual costs for these expenses to be able to claim them.

Example.
You worked 45 hours from home for 10 months and 120 hours during 2 very busy months. The calculation would be as follows:

10 months x £10 = £100 
2 months x £26 = £52
Total to be claimed: £152

Calculating expenses: living at your business premises

If you are a small business owner running a B&B, it is likely that you live there as well. In this case it can be convenient for you to use flat rate when calculating your expenses for living at your business premises.

This expense is based on the number of people living at the premises at any one time of the year. Using the flat rate, you need to calculate the total expenses for the premises and then subtract the relevant flat rate.

Flat rates:

• if 1 person lives in the property, you can claim £350 per month
• if 2 people live in the property, you can claim £500 per month
• if 3 or more people live in the property, you can claim £650 per month.

Example.
You and your partner have a guest house. You live there all year round. Your nephew also comes to help during the summer break and lives in the guest house for 2 months. Your overall business premises expenses are £20,000.

Calculation:
Flat rate: 12 months x £500 per month = £6,000
Flat rate: 2 months x £650 per month = £1,300
Total = £7,300

Total to be claimed: £20,000 - £7,300 = £12,700