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Hello, I’m Sara, a Chartered Accountant who transitioned into running an online business. I understand just how daunting and confusing it can be to take the leap into self-employment. The questions, the uncertainties, and the steep learning curve are all challenges I’ve faced myself. Whether you’re in the early stages of planning to go self-employed, just dipping your toes into making money on your own terms, or already fully committed, this blog is dedicated to helping you every step of the way. Through detailed guides, expert tips, and practical advice, I aim to be your go-to resource. From mastering financial management and navigating tax obligations to setting up the foundations of your business, I’m here to provide you with the clarity and confidence you need to thrive in your self-employment journey.
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Understanding Simplified Expenses for Self-Employed Individuals
Are you aware of the simplified expenses you can claim as a self-employed person, or whether you’re eligible for them? HMRC's simplified expenses scheme is designed to streamline the process of claiming allowable business expenses by using flat rates, eliminating the need to keep receipts. This guide will help you understand which expenses qualify for simplified treatment and how to claim them on your tax return.
Note: This guide is intended for self-employed individuals. Different rules may apply if you operate as a Limited Company.
Table of Contents:
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What Are HMRC Simplified Expenses?
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Who Is Eligible for Simplified Expenses?
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Simplified Expenses for Business Mileage
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Simplified Expenses for Working From Home
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Simplified Expenses for Bed & Breakfast Owners
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Should You Use HMRC Simplified Expenses?
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How to Claim Simplified Expenses on Your Tax Return
1. What Are HMRC Simplified Expenses?
HMRC’s simplified expenses scheme allows self-employed individuals to claim certain expenses using predetermined flat rates instead of actual amounts. This scheme simplifies the process, removing the need for receipts and creating a fairer system for calculating expenses. The simplified expenses scheme covers three types of expenses:
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Business mileage using your personal vehicle
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Home office expenses
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Living costs when working from business premises
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2. Who Is Eligible for Simplified Expenses?
Simplified expenses are available to:
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Self-employed individuals
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Sole traders
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Freelancers
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Partnerships where no partner is a Limited Company
3. Simplified Expenses for Business Mileage
If you use your personal vehicle for business, you can claim a fixed mileage rate. The rates for the 2021/2022 tax year are:
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45 pence per mile for cars and vans for the first 10,000 miles (25 pence thereafter)
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24 pence per mile for motorcycles
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20 pence per mile for bicycles
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4 pence per mile for electric vehicles
These rates cover fuel and other running costs, including:
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Insurance
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Repairs
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Servicing
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Fuel
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Road tax
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General wear and tear
Note: You cannot use simplified expenses if you claim capital allowances for your vehicle.
4. Simplified Expenses for Working From Home
If you work from home, you can claim a flat-rate amount to cover increased household expenses. To qualify, you must work from home for at least 25 hours per month. The flat rates for the 2021/2022 tax year are:
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£10 per month for 25 to 50 hours
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£18 per month for 51 to 100 hours
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£26 per month for 101 or more hours
Note: Internet and mobile phone costs are not covered under simplified expenses and should be claimed separately.
5. Simplified Expenses for Bed & Breakfast Owners
If you live and work in the same premises, such as a bed and breakfast or hotel, you must account for personal use. The flat-rate deductions for the 2021/2022 tax year are:
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£350 per month for one resident
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£500 per month for two residents
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£650 per month for three or more residents
Example: If you run a bed and breakfast with business premises costs of £13,000 and live there for the entire year, you would deduct £4,200 (£350 x 12 months) from your costs, leaving you with £8,800 as an allowable expense.
6. Should You Use HMRC Simplified Expenses?
Simplified expenses can simplify your accounting, especially if your tax affairs are straightforward. However, they may not always be financially advantageous. You might benefit more from claiming actual expenses depending on your specific situation. Use the simplified expenses checker on the .GOV website to determine if this option suits you.
7. How to Claim Simplified Expenses on Your Tax Return
To claim simplified expenses, enter them in the self-employment section of your tax return. If your turnover is below £85,000, you can use the simplified version of the tax return form and only enter your total expenses. For turnovers above £85,000, provide a breakdown of your expenses in the appropriate boxes set by HMRC.
Regardless of your turnover, keep detailed records of your claims and how you calculated them. This will help in case of an HMRC investigation and ensure you’ve paid the correct amount of tax.