Saving tax with simplified expenses

Newsletter issue - August 2018.

Certain sole traders and partnerships may benefit from using HMRC's simplified expenses regime to calculate business expenses for vehicles, working from home and living on the business premises.

Currently, businesses can either calculate expenses by working out the actual costs, or use HMRC's published flat rates. 

HMRC's checker can be used to work out which method will produce the most favourable result.

The checker asks the user to make estimates about some of their business expenses.

However, the tool:

• does not give exact figures to use in the individual's tax return - it merely confirms which method of calculating expenses might save the taxpayer money;
• can only give an answer for one vehicle at a time - where the business has several vehicles, the user will have to start at the beginning of the checker for each vehicle.

The checker cannot be used for vehicle expenses if:

• the cash basis is used and the vehicle has already been deducted as a capital cost;
• the vehicle being claimed for is used by an employee and tax is paid on it as a benefit; or
• a claim is being made for a car which has been used in the business before April 2015.

Current rates

HMRC-approved rates under the simplified expenses regime are currently as follows:

Vehicles

• Cars and goods vehicles first 10,000 miles - 45p per mile
• Cars and goods vehicles after 10,000 miles - 25p per mile
• Motorcycles - 24p per mile

Working from home

To be used where the taxpayer works for 25 hours or more a month from home.

• 25 to 50 hours a month - £10 per month
• 51 to 100 hours a month - £18 per month
• 101 and more a month - £26 per month

Living at business premises

A small number of businesses use their business premises as their home, e.g. a guesthouse, bed and breakfast or small care home.  Under simplified expenses, the taxpayer calculates the total expenses for the premises, then uses the flat rates below to subtract an amount for personal use of the premises, based on the number of people living on the premises, and claims the rest as business expenses.

• 1 person - £350 per month
• 2 people - £500 per month
• 3+ people - £650 per month

For example, a couple run a bed and breakfast and live there the entire year. Overall business premises expenses are £15,000.

Simplified expenses calculation:

Flat rate: 12 months x £500 per month = £6,000

The couple can claim can claim:

£15,000 - £6,000 = £9,000

Further information on simplified expenses can be found on the HMRC website.