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Saving tax with simplified expenses

Newsletter issue - August 2018.

Certain sole traders and partnerships may benefit from using HMRC's simplified expenses regime to calculate business expenses for vehicles, working from home and living on the business premises.

Currently, businesses can either calculate expenses by working out the actual costs, or use HMRC's published flat rates

HMRC's checker can be used to work out which method will produce the most favourable result.

The checker asks the user to make estimates about some of their business expenses.

However, the tool:

The checker cannot be used for vehicle expenses if:

Current rates

HMRC-approved rates under the simplified expenses regime are currently as follows:

Vehicles

Working from home

To be used where the taxpayer works for 25 hours or more a month from home.

Living at business premises

A small number of businesses use their business premises as their home, e.g. a guesthouse, bed and breakfast or small care home.  Under simplified expenses, the taxpayer calculates the total expenses for the premises, then uses the flat rates below to subtract an amount for personal use of the premises, based on the number of people living on the premises, and claims the rest as business expenses.

For example, a couple run a bed and breakfast and live there the entire year. Overall business premises expenses are £15,000.

Simplified expenses calculation:

Flat rate: 12 months x £500 per month = £6,000

The couple can claim can claim:

£15,000 - £6,000 = £9,000

Further information on simplified expenses can be found on the HMRC website.