24 Sep, 2020 10:21 AM
Admin Category: Business Advice,

Simplified Expenses For Self-Employed Individuals

A guide which aims to help self-employed individuals regarding how to use Simplified Expenses

As a freelancer or self-employed individual, you have more to consider than the average employee as the process can get complicated and arduous for you. Being a self-employed individual, managing everything in your business by yourself can be tough sometimes. Especially when it comes to the accounting and bookkeeping procedure. 

To ease up your accounting and bookkeeping process, HMRC has introduced the Simplified Expenses regime. It aims to make the reporting process easier and efficient for self-employed people with straightforward tax affairs. 

What are Simplified Expenses?

Simplified Expenses are a way of calculating some of your business expenses using flat rates instead of working out your actual business costs. It’s a method of calculation which aims to provide you with an opportunity to determine your allowable expenses. 

This regime of HMRC’s is a useful setup for self-employed individuals to ease the complication of accounting and tax returns. It’s not mandatory to use the system, you can only use it if it fits for your business. However, you can use the setup to calculate some of your expenses in a simplified manner.

Also, you can hire a small business accountants in London to help you determine where you can use simplified rates and where you can use actual expenses. The flat rates are provided by HMRC, and you can use the simplified expense rate checker to see if you can save money using simplified rates. In such cases, highly qualified accountants in London can also help you optimise your bookkeeping process to maximise tax savings.

Who can use Simplified Expenses?

The following businesses can use simplified expenses:

  • Self-employed individuals working as sole-traders
  • Business partnerships that have no companies as partners.

Who cannot use Simplified Expenses?

Simplified expenses can’t be used by:

  • Limited Companies 
  • Business partnerships involved with a limited company.

What are the types of expenses?

Currently, simplified expenses flat rates can only be used for three types of business expense:

  • Business costs for vehicles
  • Cost incurred by working from home
  • Costs from living in your business premises. 

You must calculate all other expenses; other than the three types listed above, by working out the exact costs.

Simplified Expenses for Vehicles

You can use the simplified expenses scheme to determine the cost of vehicle usage by applying flat mileage rates for cars, vans, or motorcycles. It will help you calculate and determine the accurate cost of the purchase and maintenance costs of the vehicles.

In the UK, the simplified expenses mileage rates for the 2018/19 tax year are:

  • For cars and goods vehicles on the first 10,000 miles: 45 pence per mile 
  • For cars and goods vehicles over 10,000 miles: 25 pence per mile 
  • For motorcycles: 24 pence per mile.

These rates only apply to the use of these vehicles. You can also claim the cost of these as allowable expenses for all other travel expenses such as, taking trains or using other transport for solely business purposes. 

Remember that, you don’t have to use flat rates for all your vehicles. But once you start using the simplified expenses flat rates for an individual vehicle, you must continue to do so for as long as it’s being used for business purposes.

Note: You can’t claim simplified expenses for a vehicle you’ve already claimed capital allowances for, or you’ve included as an expense when you worked out your business profits.

Simplified Expenses and Working From Home

As a self-employed individual or freelancer, tracking down and keeping record of your expenses can be very challenging when working from home. Especially the calculation regarding the numbers of hours you spend working and how you’re using the house for your work purposes. 

In such cases, the simplified expenses scheme makes work-from-home expense calculation much easier for you. By using this scheme, you don’t have to work out the proportion of personal and business use for your home. For example, you work from home at least 25 hours per month, and you can use it for rent, utilities, and other similar expenses. But, it doesn’t include internet or telephone expenses. Which means to use the internet or telephone; you need to work out the actual proportion used for business purposes.

The work from home flat rates for the 2018/19 tax year are:

  • £10 per month: If you work between 25 and 50 hours per month
  • £18 per month: If you work between 51 and 100 hours per month
  • £26 per month: If you work 101 or more hours per month

Note: You can only use simplified expenses if you work for 25 hours or more a month from home.

Simplified Expenses and Living at Your Business Premises

As a small business owner, you might use your business premises as your home. For example, when you're running a guesthouse, bed and breakfast or small care home; you might live there. In such cases you can use simplified expenses instead of working out the split between what you spend for your personal and business use of the premises.

With simplified expenses you can calculate the total expenses for the premises. Use the flat rates to subtract an amount for your personal use of the premises, based on the number of people living on the premises and claim the rest as your business expenses. The simplified expenses flat rates for living in a business premises for the 2018/19 tax year are:

  • £350 per month: When 1 person is living in the premises
  • £500 per month: When 2 people are living in the premises
  • £650 per month: When 3 or more people are living in the premises

However, in these cases, the flat rate scheme works a little differently. If you’re living in your business premises, you use the flat rates to calculate a deduction from your total expenses related to the premises. In this case, you still need to calculate your total exact costs, but you don’t have to work out the precise split between personal and business use.

How can you use Simplified Expenses?

The simplified expenses can be used for straightforward tax affairs and relatively few business expenses. You can use the scheme as following: 

  • Firstly, record the business element for each expense; hours you work from home, business miles you use for vehicles and how many people live at your business premises, over the entire tax year. 
  • By the end of the tax year, use the flat rates for each applicable expense to work out your expenses. 
  • Lastly, make sure you include these figures to your total expenses when completing your Self Assessment tax return.

Determine whether using the simplified expenses method is the best option for your business or not, use the simplified expense checker. The checker will help you compare how much you can claim if you work out the actual expenses with what you can claim using simplified expenses.

How can we assist you?

At Taj Accountants we offer a wide range of accounting and taxation services to corporates, as well as individuals. Our client base ranges from individuals who are looking for general accounting and taxation advice to sole traders, limited companies or partnerships. Whatever your goals are, our group of experts is always eager to offer advice and take on every challenging situation. Whether you are a self-employed individual, start-up company, or simply looking for manageable account support, you can always contact us for any services or advice. 

DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you to contact Taj Accountants for further assistance.

Whatsapp Now