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Here’s all that you must know about Simplified Expenses:
| What are Simplified Expenses? | A flat-rate method for calculating business costs instead of tracking every single expense. |
| Who Can Use It? | Sole traders and standard business partnerships (not limited companies). |
| What It Covers? | Home office use, vehicle expenses, and business premises costs. |
| Why It’s Useful? | Reduces admin, saves time, and makes record-keeping easier. |
| Impact on Taxes? | Helps self-employed individuals claim allowable costs efficiently, lowering taxable income. |
| How to Claim? | Apply flat rates set by HMRC and keep supporting records. |
Table of Contents
Running your own business comes with freedom, but it also comes with paperwork. Managing business expenses, calculating actual costs, and keeping records can eat away hours that could be spent on your work. This is where the simplified expenses system comes in, and even becomes better when one has access to an expert, such as, experts from MMBA Accountants.
Simplified expenses let self-employed individuals reduce admin by using a flat rate for certain business costs instead of calculating actual business costs line by line. It’s designed to make business purposes recordkeeping easier. Sole traders and business partnerships (but not limited companies) can use simplified expenses to claim business expenses such as home use, vehicle expenses, and business premises expenses.
For freelancers, tradespeople, and even artists managing essential business administration, understanding simplified expenses helps you make financial sense of your choices and ensure you claim everything you’re entitled to.
Eligibility and Claiming Simplified Expenses
Not everyone can claim simplified expenses. You must be a sole trader or in a standard business partnership. Business partnerships involving limited companies and limited companies themselves are not eligible.
What you can do is claim a flat rate for:
Business use of your home : Based on hours spent working.
Vehicle costs : Claiming per business mile instead of calculating fuel, repairs, and vehicle insurance separately.
Business premises : Such as running a guest house or small warehouse utility bills.
This removes the need to track every electricity bill, internet bills, or stationery purchase when they overlap with personal and business use. Still, you need to keep supporting evidence that the expense is for business purposes.
Business Expenses and Costs
As a self-employed professional, you’ll face many business expense costs:
- Office and equipment costs such as computers, cartridges, and software equipment.
- Travel expenses for meetings or client visits.
- Legal and financial costs such as accounting fees or business loan interest.
- Employee wages and business staff expenses if you hire help.
- Professional subscriptions like trade body memberships, professional journals, or business specific licences.
You can either track actual business costs or choose simplified expenses for some categories. For example, claiming running costs of a home office can be tricky when splitting phone or internet bills between work and family. The flat rate makes it straightforward. For the latest topical business news articles, visit our news section.
Business Premises and Capital Allowances
If you rent a small office, studio, or business premises, you can claim business expense costs such as utility bills, maintenance purchase costs, or electricity business rates. With simplified expenses, you may opt for a flat rate instead of adding every detail of business premises expenses.
For equipment, you may claim capital allowances. These apply to business equipment such as laptops, furniture, or vehicles. However, you cannot claim capital allowances on business premises themselves. Claimed capital allowances help reduce the income tax paid by lowering your taxable business profits.
Legal and Financial Considerations
Even when using simplified expenses, legal and financial work remains essential. You must keep accurate records of self-employed earnings, VAT, and tax year income.
Allowable expenses include business loan interest, accounting fees, current business entertainment, and costs relating to professional journals. If you run a business partnership, remember to factor in business partnership expenses and the legal obligations of sharing costs with a business partner.
Being disciplined with storage and completing tax returns ensures you avoid problems with HMRC.
Financial Costs and Recordkeeping
Beyond premises and travel, there are hidden financial costs. These include:
- Business loan repayments and interest.
- Credit card fees used for business purposes.
- Internet bills, stationery, and materials costs.
While simplified expenses reduce the paperwork burden, you still need to keep receipts for claim costs that are not covered by the flat-rate system. For example, if you buy computer software equipment or pay gardeners’ wages for a rental business premises, keep proof.
Limited Company Structure
If you’re running as a sole trader, you might wonder if forming a limited company makes financial sense. While limited companies cannot claim simplified expenses, they can claim business expense costs directly through company accounts.
A limited company must prepare annual accounts, report under the monthly reporting period, and pay corporation tax on business profits. Through this route, you can still claim expenses such as employee wages, vehicle insurance, and legal and financial costs. For some, this offers extra financial protection compared to trading alone.
Business Use and Expenses
The HMRC rules allow you to claim business usage of your vehicle, phone, or home. If you drive, you can either claim vehicle costs directly or use the flat rate per mile method. For phone or internet bills, you can split them between personal and business use or simply claim a flat rate under simplified expenses.
Whether it’s equipment costs or business partner goods, you must prove the business purposes of each claim. Done right, these deductions lower your income tax paid and boost cash flow.
National Insurance and Pension Contributions
Self-employed individuals must pay national insurance on self-employed earnings. To prepare for the future, you can also contribute to a registered pension scheme. Pension contributions are an allowable expense that reduce taxable business profits.
Combined with simplified expenses, this helps reduce your liability and ensure that your universal credit being or retirement planning is well supported. Keeping records for NI and pensions is essential for every tax year.
Conclusion
Managing business expense costs can be overwhelming. Simplified expenses are designed to cut through the complexity and make things easier for the self-employed. Whether you’re dealing with running costs, capital allowances, or business partnerships, the key is balancing between actual costs and the simplified business approach.
If you claim simplified expenses wisely, you’ll save time, reduce admin, and ensure you never miss out on deductions that could improve your cash flow.
Frequently Asked Questions
Can I claim costs for professional subscriptions as business expenses?
Yes, you can claim costs for professional subscriptions such as memberships to trade associations, professional journals, or a trade body, as long as they are directly related to your business activities.
Are cartridges, computer software, and equipment allowable business expenses?
Absolutely. Items like cartridges, computer software, and equipment used for business purposes can be claimed as part of your business expense costs.
Do I need to keep records when completing tax returns with simplified expenses?
Yes, even with the simplified expenses system, you must maintain evidence. Think storage and completing tax returns with receipts, invoices, and logs to back up your claims.
Can I claim gardeners’ wages paid as a business expense?
You can claim gardeners’ wages paid only if the work is directly linked to your business premises or property used solely for business purposes, not personal use.
What counts as total running costs for self-employed individuals?
Total running costs include expenses like rent, utility bills, maintenance, office equipment, and travel, whether claimed as actual costs or through simplified flat-rate methods.
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