Keeping Records: Simplified Expenses

In addition to the traditional accounting method for keeping records, there is the Simplified Expenses Method. This can be used by Self-employed businesses and sole traders.

How do simplified expenses work?

The simplified expenses method works by using flat rates to calculate a number of expenses instead of recording the actual expenses.

Which Expenses Can I Use Simplified Expenses For?

Simplified expenses can be used for motor costs, working from home costs, and the cost of living at your business premises.

Motor Expenses

With motor expenses, you need to record the number of business miles made in the vehicle per year. This amount is multiplied by a flat rate:

• 45p per mile for the first 10,000 miles (in the year)
• 25p per mile for any additional miles
• 24p per mile for any business miles travelled using a motorcycle

Recording motor expenses in this way is also known as a Mileage Expense. If you use this method you cannot claim back any expenses or capital allowances for the same vehicle.

Always check which method will create the greatest expense. Recording the mileage expense can sometimes result in a lower motor expense and a higher tax bill.

Simplified Exenses for Working From Home

The flat rate for working at home covers expenses such as utilities and rent. It is calculated by taking the number of hours you work at home, during each month, to determine the rate you use.

• If you work between 25 and 50 hours you can claim £10 per month
• If you work between 51 and 100 hours you can claim £18 per month
• If you work more than 101 hours at home per month you can claim £26 per month

These amounts are calculated on a month by month basis. If you work 116 hours at home in June you claim £26 for that month. Even if you work less than 25 hours at home per month for the rest of the year.

The above rates do not take internet and telephone costs into account. Therefore you can still claim these in the usual method in addition to the flat rate.

As with motor costs, check both methods, as a flat rate can affect the amount of tax you have to pay.

Living At Your Business Premises

Simplified expenses works a little differently when you live at your business premises.

First you need to record and calculate the total expenses just like with traditional accounting. Then you apply a flat rate to reduce the expenses. The flat rate is determined by how many people live at the business premises.

• £350 per month for one person living at the business premises
• £500 per month for two people living at the business premises
• £650 per month for three or more people living at the business premises

The flat rate is applied instead of calculating the actual expenses for living at the business premises and subtracting that figure from your total. As with the above expenses, you should look into both methods to see if there is a difference in the tax you will have to pay.

Who Can Use Simplified Expenses?

Simplified expenses can be used by self-employed businesses such as sole traders. Limited companies cannot use the simplified expenses method for keeping records.

If you would like any additional advice or assistance for simplified expenses or record keeping in general, please do not hesitate to contact us.