What are simplified expenses and should I use them as a sole trader?

Full answer

Simplified expenses are optional flat-rate deductions for self-employed people that replace calculating the actual business proportion of certain costs. They cover three areas: vehicle mileage, use of home, and living at your business premises. Vehicle mileage uses a set pence-per-mile rate covering fuel, insurance, repairs and running costs, so you cannot also claim those actual costs. Working from home uses a flat monthly amount that increases with the number of hours you work there, instead of apportioning your actual rent, heat and light. Living at your premises (for example a guesthouse owner) applies a flat private-use deduction. Worked example: a sole trader with GBP 45,000 taxable profit. Whether you use simplified or actual expenses simply changes the profit figure. Suppose simplified expenses give GBP 45,000 profit but a detailed actual-cost claim (a higher proportion of a large home office and car) brings it to GBP 42,000. Income tax on GBP 42,000 after the GBP 12,570 allowance is 20% on GBP 29,430 = GBP 5,886; on GBP 45,000 it is 20% on GBP 32,430 = GBP 6,486. The GBP 3,000 extra deduction saves GBP 600 tax plus GBP 180 in Class 4 NI at 6%. Simplified expenses win on time, not always on tax. Keep records both ways in year one to compare. Use the self-employed-tax calculator to test the impact, and check the current flat rates at gov.uk.

Try the calculator