What Are Simplified Expenses?
Simplified expenses are an HMRC scheme that lets self-employed individuals and partnerships use flat rate amounts to calculate certain business expenses. Instead of tracking every receipt and apportioning actual costs, you apply a fixed rate based on a simple measure such as miles driven or hours worked from home.
The scheme covers three categories of expense:
- Business vehicles (cars and vans)
- Working from home
- Living in business premises
Simplified expenses are available to sole traders and partnerships with no corporate partners. They are not available to limited companies.
Vehicle Expenses
Instead of calculating the actual cost of fuel, insurance, road tax, servicing, and depreciation for a business vehicle, you can use the approved mileage rates to claim a flat rate per business mile driven.
Approved Mileage Rates
| Vehicle type | First 10,000 miles | Each mile over 10,000 |
|---|---|---|
| Cars and vans | 55p | 25p |
| Motorcycles | 24p | 24p |
| Bicycles | 20p | 20p |
These rates are the same as the mileage allowance rates used by employers for employees, but the rules for claiming them differ for self-employed individuals.
How to Claim
- Record every business journey, including the date, destination, purpose, and miles driven
- Multiply the total business miles by the applicable rate
- Deduct this amount as an expense on your self-assessment return
Example
A self-employed consultant drives 14,000 business miles in the tax year:
| Mileage band | Miles | Rate | Amount |
|---|---|---|---|
| First 10,000 miles | 10,000 | 55p | £5,500 |
| Remaining miles | 4,000 | 25p | £1,000 |
| Total deduction | £6,500 |
Important Restrictions
- You can only use simplified expenses for vehicles you own. Leased vehicles do not qualify — you must claim actual lease payments instead
- You cannot claim capital allowances on a vehicle if you use the simplified mileage rate
- Once you start using simplified expenses for a particular vehicle, you must continue using them for that vehicle (you cannot switch between simplified and actual expenses year to year for the same car)
- The rates cover all running costs — you cannot claim any additional vehicle costs on top
Working from Home
If you use part of your home for business, simplified expenses allow you to claim a flat rate based on the number of hours per month you work from home.
Flat Rates for Home Working
| Hours worked from home per month | Monthly flat rate |
|---|---|
| 25 to 50 hours | £10 |
| 51 to 100 hours | £18 |
| 101 or more hours | £26 |
These rates cover the additional costs of working from home, including heating, electricity, internet, and telephone used for business purposes.
Example
A freelance graphic designer works from home for 120 hours per month, every month of the year:
| Month | Hours | Rate | Amount |
|---|---|---|---|
| Each month (× 12) | 120 | £26 | £26 |
| Annual deduction | £312 |
Actual Costs Alternative
If your actual additional costs of working from home are higher than the flat rate, you may prefer to calculate the actual proportion of home expenses attributable to business use. This involves:
- Adding up relevant household bills (electricity, gas, internet, council tax, insurance)
- Calculating the proportion of the home used for business (by room area and time)
- Deducting the business proportion as an expense
For most home workers with modest additional costs, the simplified flat rate is simpler but may produce a lower deduction than the actual cost method.
Living on Business Premises
If you live in your business premises (for example, above a shop or in a pub), simplified expenses work differently. Instead of calculating what proportion of costs is personal and disallowing it, you deduct a flat rate for the personal use element and claim the remainder as a business expense.
Personal Use Flat Rates
| Number of people living on the premises | Monthly flat rate (personal use) |
|---|---|
| 1 | £350 |
| 2 | £500 |
| 3 or more | £650 |
This flat rate represents the non-business (personal) portion of the premises costs. You deduct the flat rate from your total premises expenses, and the remainder is your allowable business expense.
Example
A sole trader lives above their shop with one other person. Total annual premises costs (rent, utilities, insurance, business rates) are £18,000.
| Calculation | Amount |
|---|---|
| Total premises costs | £18,000 |
| Personal use deduction (£500 × 12) | £6,000 |
| Allowable business expense | £12,000 |
Without simplified expenses, the trader would need to calculate the actual split between personal and business use based on floor area and usage patterns.
Choosing Between Simplified and Actual Expenses
You can use simplified expenses for some categories and actual expenses for others. For example, you might use the mileage rate for vehicles but calculate actual costs for working from home.
| Category | When simplified expenses are better | When actual expenses are better |
|---|---|---|
| Vehicles | Running costs per mile are low; the car is older and fully depreciated | High running costs; the car is new and capital allowances are valuable |
| Working from home | You work from home occasionally; additional costs are low | You have a dedicated office; a significant portion of bills relates to business use |
| Business premises | Calculating the personal/business split is complex | The personal use proportion is clearly small |
Key Considerations
- Capital allowances — If you use simplified mileage rates, you cannot also claim capital allowances on the vehicle. For expensive new vehicles, claiming actual costs plus capital allowances (or the Annual Investment Allowance) may produce a larger deduction
- Consistency — Once you choose simplified expenses for a vehicle, you must stay with it for that vehicle. For home working and premises, you can switch methods between years
- Record-keeping — Simplified expenses require less detailed records (just mileage logs or hours worked), while actual expenses require receipts, bills, and apportionment calculations
How to Report Simplified Expenses
Simplified expenses are reported on your self-assessment tax return:
- Self-employment pages (SA103S or SA103F) — Enter the flat rate amounts in the appropriate expense categories
- For vehicles, record the total business mileage in the boxes provided
- For working from home, calculate the annual total from your monthly hours
You do not need to make a formal election or notify HMRC in advance. You simply use the flat rates when completing your return.
Interaction with Tax-Deductible Expenses
Simplified expenses cover only the three categories listed above. All other tax-deductible expenses — such as stock, materials, professional fees, advertising, and office equipment — are claimed at their actual cost in the normal way, regardless of whether you use simplified expenses for vehicles or home working.