Simplified Expenses for Sole Traders

UPDATED: 24th October 2024

If you decide to start a business as a sole trader you will be required to register with HMRC and file tax returns.

For smaller sole trader businesses HMRC have made the tax rules simpler so that it is easier for small businesses to file their returns.

The second part of HMRC’s Simpler Income Tax scheme is Simplified Expenses. It aims to make the way unincorporated businesses (sole traders and partnerships) work out their businesses expenses more straight forward. Though the practical application of the process is as the name suggests and is simple, there is quite a lot to get your head around.

What is the Simplified Expenses scheme?

Simplified Expenses do not change HMRC’s definition of business expenses. Expenses are business costs which you deduct from your profit to reduce the amount of income tax you pay. The Simplified Expenses system gives you flat rates to claim for 3 areas of the business which are particularly difficult to work out:

• motoring costs;
• expenses of running a business from home, and;
• private use of business premises.

All other sole trader expenses still need to be calculated in the usual way.

 

When will Simplified Expenses be useful?

UK tax law states that you can only claim the costs which relate directly to your business. This can be difficult to quantify for charges where your personal and business usage is billed together. Things like your electricity bill for your home-based office, or insurance on a van you use for business and personal travel, fall into this category.

 

Do I have to use Simplified Expenses?

No.

Sole traders and partnerships can decide if the scheme will suit their business and they can choose which elements of Simplified Expenses to implement. Limited Companies and Limited Liability Partnerships are not permitted to use Simplified Expenses.

How do I use Simplified Expenses for motoring costs?

To claim business expenses for vehicles, you’ll use a flat rate to claim business mileage instead of claiming the actual costs of fuel and maintenance. HMRC have set out the following flat rates:

 

Vehicle	Flat rate per mile with Simplified Expenses	What you can claim if you don’t use Simplified Expenses
Cars and goods vehicles first 10,000 miles	45p	Capital allowances and running costs (for cars) or purchase costs (goods
Cars and goods vehicles after 10,000 miles	25p	Capital allowances and running costs (for cars) or purchase costs (goods vehicles)
Motorcycles	24p	Full purchase cost and running costs

 

You’ll still need to keep a record of the number of miles travelled, but you won’t need to keep track of the running and maintenance costs. You can still claim all other travel expenses (eg train journeys) in the usual way.

 

You don’t have to use flat rates for all your vehicles but once you’ve chosen to use them for a vehicle you must stick with this as long as you use that vehicle for your business.

 

Example: If you drive 12,000 miles in the tax year 2024 to 2025 you’d work out your vehicle expenses as follows:   10,000 x 45p per mile = £4,500 2,000 x 25p per mile = £500 £4,500 + £500 = £5,000   Total you could claim is £5,000 for vehicle expenses for the year.

 

 

How do I use Simplified Expenses for business use of my home?

Instead of attempting to calculate the exact usage for separate utility bills for your home office, you can claim a flat rate for business use at home, based on the number of hours you work from home. This means that you will no longer need to work out what proportion of each utility bill is from business use.

 

HMRC have provided the following flat rates for claiming the expenses of running your business from home:

Hours of business use per month	Flat rate per month (for 2024/25)
25 to 50	£10
51 to 100	£18
101 and more	£26

You can only use this part of Simplified Expenses if you work 25 hours or more per month at home. You use your home for business if you:

• provide the goods and/or services of your business from your home (this doesn’t include time spent at someone else’s premises;
• maintain your business records at home;
• time spent on marketing and generating new business at home.

Example: If you worked 30 hours per month from home for 10 months, but worked 55 hours per month during 2 particular months, you’d work out your business usage as follows:   10 months x £10 per month = £100 2 months x £18 per month = £36 £100 + £36 = £136   Total you could claim for business use of you home for the year is = £136

How do I use Simplified Expenses for private use of my business premises?

A small number of businesses use their business premises as their home, like those that run a B&B, guest house or care home. In these cases part of the business expenses will be from private usage.

 

With Simplified Expenses you deduct a flat monthly rate for private use from your total expenses. The flat rate depends on how many people use the business premises each month as a private home. HMRC have set out the following flat rates:

Number of people	Flat rate per month
1	£350
2	£500
3+	£650

Like using your home for your business, it can also be difficult to work out what proportion of business premises expenses are from personal use. With Simplified Expenses you don’t have to work out how much of the expenses are from private use.

Example: You live at the premises by yourself the entire year. If your expenses for utilities, rates, etc. is £16,500 per year, you’d work out your private use of business premises as follows:   12 months x £350 per month = £4,200 £16,500 – £4,200 = £12,300   The total you could claim as business expenses for the year is £12,300.

Example: You live at the premises with your spouse the entire year, and your daughter studies abroad for 4 months, but is home for 8 months. If your expenses for utilities, rates,  etc. is £16,500, you’d work out your private use of business premises as follows:   4 months x £500 per month = £2,000 8 months x £650 per month = £5,200 £2,000 + £5,200 = £7,200 £16,500 – £7,200 = £9,300   The total you could claim as business expenses for the year is £9,300.

 

No matter which method you use, there is a lot involved in working out your business expenses. Simplified Expenses provides basic formulae to follow which will reduce the time you spend working it all out and gives you more time to focus on growing your business. Simplified Expenses will not suit every sole trader, but it may be worth-while to look into if any parts of it could be useful to yours.

 

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