Simplified Expenses for Self-Employed

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Do you remember the second most important rule about business expenses for self-employed we mentioned in our last article?

It says that if your expenses are both for private and business use, you can only claim a business proportion in your self-assessment tax return.

A great example is your house expenses if you run your business from home. As it’s got a dual purpose, you can’t claim the full cost. What you need to do instead is to calculate your business cost and include only that number in your tax return.

Sounds like a big job to do, doesn’t it?

It can be if you’re trying to calculate the actual cost of everything like electricity, heating, water etc.

But great news is you don’t have to do these complicated calculations. Instead you can use something that is called simplified expenses.

What are simplified expenses?

Simplified expenses is a method of calculating some business costs using flat rates instead of calculating actual costs.

The main goal of simplified expenses is making your life easier and saving you some time when doing your bookkeeping. In some cases it can also bring reduce your tax liability.

What is included in simplified expenses?

Simplified expenses for self-employed cover only certain business costs and not all of them.

They can be applied to the following costs only:
➡Working from home
➡Vehicle costs
➡Living in your business premises

This means the rest of your costs, if they have a dual purpose, must be claimed by working out actual costs.

How do I use simplified expenses?

Simplified expenses for working from home:
You record number of hours you work from home each month and multiply this by a flat rate which you take from HMRC website. You can use HMRC simplified expenses for working from home only if you work minimum 25 hours a month from home.

Simplified expenses for vehicle costs:
This is super easy. Record a number of miles and multiply this by a flat rate. If you choose HMRC simplified expenses for your vehicle, you have to continue using it for as long as you have this vehicle for your business. However, if you have more than one vehicle, you don’t have to use the same method with all of them.

Simplified expenses for living in your business premises:
Start with calculating your total monthly expenses for business premises. Then, depending on the number of people living in the premises, deduct a relevant flat rate per month. The amount you’re left with is what you can claim as your business expense.

Check current flat rates on the Gov website.

Easy peasy! But…not for everyone. In some cases you may be better off calculating actual costs. Ask your bookkeeper/accountant to help you choose what could work best for you or use this HMRC checker to give you a rough idea.

Can you use simplified expenses with cash basis?

Yes, simplified expenses can be used alongside cash basis accounting.

For further information on accounting help for your business, why not contact our Oxford bookkeeping office, where we can assist you.

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