In addition to the traditional accounting method for keeping records, you could choose to use the simplified expenses method instead.
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, costs of working from home and the cost of living at your business premises.
With motor expenses, you just need to record the number of business miles you make in the vehicle. The amount is then multiplied by a flat rate of 45p per miles for the first 10,000 miles of the year, and 25p per mile for any additional miles travelled. If you use a motorcycle this rate will be 24p per mile regardless of how many miles you travel.
Recording motor expenses in this way is also known as a mileage expense and if you use this method you cannot claim back any expenses or capital allowances. I would advise that you check which method creates the greatest expense beforehand as recording the mileage expense can sometimes result in a lower motor expense and a higher tax bill.
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 that you work during the month to determine the rate you use. If you work between 25 and 50 hours you can claim £10 per month, £18 per month for between 51 and 100 hours and £26 per month if you work more than 101 hours at home per month.
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, be sure to 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 for living at your business premises. First you record and calculate the total expenses just like with traditional accounting, then you apply a flat rate to reduce the expenses determined by how many people are living at the business premises. The flat rate is £350 per month for one person, £500 per month for two people and £650 per month for three or more people.
The flat rate is applied instead of calculating the actual expenses for living at the business premises and subtracting that figure from your total. This means that you may want to 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.