Do simplified expenses really save your business money?

Generally speaking – HMRC only allows expenses which are deemed to be “wholly, necessarily and exclusively” incurred in the performance of your business duties.
If you are a sole trader or partnership (but not a limited company) you have a choice to use so-called “simplified expenses” or calculate your expenses for vehicles, working from home and living on your business premises by working out the actual costs.

What are simplified expenses?

Simplified expenses use the flat rates instead of the actual business costs you incurred, so you have to make a call what suits your business best. These flat rates can be applied for the following:

• business costs for some vehicles (with some exceptions);
• working from home;
• living in your business premises

And to be able to use the flat rates, you have to keep records of your business miles for vehicles, hours you work at home and home many people live at your business premises over the year. Then after working out your flat rates, all you have to do is include these amounts in the total for your expenses in your Self Assessment tax return.

To calculate your simplified flat rate expenses for vehicles, you have to use the mileage instead of the actual costs (like insurance, repairs, servicing or fuel).

If your car qualifies for the simplified expenses, the flat rate is 45p per mile for the first 10,000 miles, decreasing to 25p for all extra miles.

All other expenses should be claimed using the actual business costs.

Although, simplified expenses would work for some businesses and reduce administrative burden, it is advisable to check if claiming the actual business costs works better for your business, as in some cases you would probably be better off working out your expenses based on the actual costs.

Whatever business you are in, you owe it to yourself to find an accountancy service that operates for your business – not the taxman. Most people think they are paying too much tax. Often we are able to prove them right. Feel free to drop us a line with your contact details to see how we can help your business today!

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