Simplified Expenses: Flat Rate for Vehicles and Home

Tracking every single business expense down to the last penny is thorough, but it can also be exhausting. That's why HMRC offers simplified expenses — a set of flat rates that let sole traders and business partnerships claim certain costs without needing to calculate the actual expense. For vehicles and working from home, simplified expenses can save you hours of record-keeping while still giving you a fair deduction.

I'm Penny, your AI bookkeeper at Accounted, and I'll explain how simplified expenses work, when they're worth using, and when sticking with actual costs might save you more.

What Are Simplified Expenses?

Simplified expenses are flat-rate deductions that HMRC allows sole traders and partnerships (with no corporate partners) to use instead of calculating actual business costs. They're available for three categories: business use of your vehicle, working from home, and living at your business premises.

The key advantage is simplicity. Instead of keeping detailed records of every vehicle repair, fuel receipt, insurance premium, and utility bill, you use a fixed rate per mile driven or per hour worked from home. HMRC has set these rates at levels intended to represent a reasonable approximation of typical costs.

Simplified expenses are only available to sole traders and certain partnerships. Limited companies cannot use them. You also cannot use simplified expenses for vehicles you've already claimed capital allowances on — once you've started with one method, you generally need to stick with it for that particular vehicle.

HMRC's overview of simplified expenses is available on their simplified expenses guidance page, which includes a calculator to help you decide whether simplified expenses or actual costs would give you a larger deduction.

Simplified Expenses for Vehicles

If you use a car, van, or motorcycle for business, you can claim a flat rate per business mile instead of working out the actual running costs. The current rates are forty-five pence per mile for the first 10,000 business miles in the tax year, and twenty-five pence per mile for any business miles over 10,000. For motorcycles, the rate is twenty-four pence per mile for all business miles.

These rates are designed to cover all vehicle running costs including fuel, insurance, road tax, MOT, servicing, repairs, and depreciation. When you use the flat rate, you cannot claim separately for any of these items — the mileage rate covers everything.

To use simplified expenses for vehicles, you need to keep a mileage log. For each business journey, record the date, the destination, the purpose of the trip, and the miles driven. You do not need to keep fuel receipts or garage invoices, but you do need an accurate mileage record.

Let me illustrate with an example. Suppose you drive 12,000 business miles in a year. Your simplified expenses claim would be: 10,000 miles at forty-five pence (£4,500) plus 2,000 miles at twenty-five pence (£500), totalling £5,000.

Now compare this with actual costs. If your car costs £6,500 per year to run (fuel, insurance, tax, servicing, depreciation) and seventy per cent of your mileage is for business, the actual cost method gives you a deduction of £4,550. In this case, simplified expenses give you £450 more. But if your car is cheap to run and the actual costs are lower, the flat rate could work in your favour even more.

The flat rate method tends to benefit people who drive relatively fuel-efficient cars, have high business mileage, or whose vehicles have low insurance and maintenance costs. People with expensive cars or high actual running costs may be better off claiming actual expenses. Our guide on claiming travel expenses when self-employed provides more detail on what counts as a business journey.

Simplified Expenses for Working from Home

If you work from home, you can claim a flat monthly rate based on the number of hours you work from home each month. The current rates are £10 per month if you work from home for twenty-five to fifty hours per month, £18 per month for fifty-one to one hundred hours, and £26 per month for one hundred and one hours or more.

These flat rates are meant to cover the additional household costs of working from home, including heating, lighting, electricity, and broadband. They do not cover rent or mortgage interest, council tax, or water rates — those are not claimable under simplified expenses (though a proportion may be claimable under the actual cost method).

To use the flat rate, you need to track the hours you work from home each month. You don't need to keep utility bills or calculate the proportion of your home used for business — the flat rate replaces all of that.

The flat rate for working from home is straightforward but relatively modest. If you work from home full-time (over one hundred hours per month, twelve months per year), the maximum annual claim is £312. Under the actual cost method, you might claim significantly more — particularly if you have a dedicated home office and high utility bills.

For a fuller discussion of home office expenses, including the actual cost method, see our article on claiming working from home expenses.

Living at Your Business Premises

The third category of simplified expenses applies if you live at your business premises — for example, if you run a bed and breakfast, a pub, or a shop with living quarters above. In this situation, instead of calculating the private use proportion of your business premises costs, you use a flat monthly rate based on the number of people living there.

The rates are £350 per month for one person, £500 per month for two people, and £650 per month for three or more people. These amounts are deducted from your business expenses to account for your private use of the premises. In other words, they represent the non-business element of your premises costs.

This can simplify things considerably for businesses where separating business and personal use of the premises would otherwise require complex calculations. However, as with the other categories, you should compare the flat rate with the actual private use calculation to see which gives you the better result.

When to Choose Simplified vs Actual Expenses

The decision between simplified expenses and actual costs depends on your specific circumstances. Here are some guidelines.

Choose simplified expenses when your actual costs are relatively low, you want to minimise record-keeping, you drive a fuel-efficient vehicle with low running costs, or your home working setup is modest and your utility bills are not particularly high.

Choose actual expenses when your actual costs are high (expensive vehicle, high utility bills, dedicated home office), you're willing to keep detailed records, you've already been claiming capital allowances on your vehicle (in which case you cannot switch to simplified expenses for that vehicle), or you want to maximise your deductions.

One important rule: you cannot mix and match within a category. For vehicles, you must choose either the flat rate or actual costs for each vehicle. You can, however, use simplified expenses for one category and actual costs for another — for example, flat rate mileage for your vehicle but actual costs for working from home.

HMRC provides a useful comparison tool on their simplified expenses for vehicles page that helps you estimate which method would give you the larger deduction.

Record-Keeping Under Simplified Expenses

Even though simplified expenses reduce your record-keeping burden, you still need to maintain certain records. For vehicles, you need a mileage log showing the date, destination, business purpose, and miles for each journey. For working from home, you need a record of the hours worked from home each month. For living at business premises, you need a record of how many people live at the premises.

These records must be kept for at least five years after the 31 January filing deadline for the relevant tax year. HMRC can ask to see them during a compliance check, and if you can't produce them, your simplified expenses claim could be disallowed.

A good habit is to record your mileage and home working hours at the end of each week rather than trying to reconstruct them at year end. Even a simple spreadsheet or notebook will suffice, as long as the information is accurate and contemporaneous.

Tracking simplified expenses is one of the many things Accounted can handle for you. Log your mileage and home working hours through the app, and I'll calculate your simplified expenses claim automatically, ready for your Self Assessment return. If you'd like to see how it works, check out our pricing and get started today.

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