Keeping track of paperwork can be rather tedious, and not everyone’s cup of tea, but luckily, HMRC understands this and has created simplified expenses to make things more straight forward.
What Is A Simplified Expense?
A simplified expense is a flat rate set by HMRC, which you can offset against your self-employed income. It means that you don’t have to waste so much time working out your business costs when preparing your tax return. You will still need to keep track of your paperwork, but the flat rate makes it easier to claim.
HMRC have simplified three different expenses:
- Motor expenses;
- Working from home, and:
- Living in your business premises.
Simplified Expenses and Motor Costs
To claim this, you will need to keep track of your business mileage, as well as any fuel receipts. You can claim 45p per mile for the first 10,000 miles, and any miles done after this will be at a reduced rate of 25p per mile. When choosing whether to claim for actual cost or simplified cost, you need to make sure that it’s what you intend to carry on doing because HMRC will not allow you to switch from one to the other. Furthermore, if you have more that one business vehicle, you can claim actual costs for one and simplified costs for the other.
What Can I Claim For The Use Of My Home?
If you run your business from home, regardless of where in your home you work from, your bills are likely to be affected. You can sit down and work out the actual cost, but as you can imagine, this isn’t as straightforward.
If you work from home for more than 25 hours a week, you can claim the following:
- 25-50 hours a week is £10 per month;
- 51-100 hours is £18 per month; and
- 101 hours or more is £26 per month.
If you have a room in your house that you only use for work, then you will be better off calculating the actual costs.
What About Personal Usage?
This part of simplified expenses won’t affect that many people. If you live in the same building that you work from, such as a BnB or a small care home, then you are eligible to claim a percentage back. Due to the property mainly being used for business use, it would be difficult to work out what percentage of it you use for personal use.
HMRC have decided that:
- If it is just you living there, you can add back £350 per month;
- If there are two of you, you can add back £500; and
- If there are three or more of you, then you can add back £650 per month.
To do it this way you need to total up the running costs of the business and then reduce the total by the rate above.
Simplified expenses suit some people more than others, and although you may think it’s an easy way out, it may not be the most profitable. If you aren’t sure which one would suit you best, speak to your accountant to discuss the best way forward.