Simplified Expenses vs Actual Costs for Sole Traders 2026/27

If you are a sole trader, HMRC lets you pick between two ways of claiming certain costs: simplified expenses (flat rates) or actual costs (real receipts and apportionment). The flat-rate route saves admin, but it does not always save tax. This guide shows how to decide for 2026/27.

What simplified expenses cover

Simplified expenses are flat rates for three specific cost areas only:

• Vehicles: 45p per business mile for the first 10,000 miles, then 25p per mile (24p for motorcycles).
• Working from home: a monthly flat rate based on hours worked from home each month.
• Living on your business premises (for example a guest house): a flat private-use adjustment.

Everything else, such as stock, software, insurance, accountancy fees and marketing, is always claimed at actual cost. Simplified expenses only change how you treat the three areas above.

The home-working flat rates

The monthly home-working rates are tiered by hours worked from home:

• 25 to 50 hours a month: GBP 10 per month.
• 51 to 100 hours a month: GBP 18 per month.
• 101 hours or more a month: GBP 26 per month.

A full year at the top tier is GBP 312. That is simple, but if you run a genuine home office with high heating and electricity bills, the actual-cost method based on the proportion of rooms and time used can be worth far more.

Worked example: a self-employed consultant

Priya is a sole trader with GBP 48,000 of turnover. She drives 8,000 business miles a year and works 120 hours a month from a home office.

Simplified method:

• Mileage: 8,000 x 45p = GBP 3,600.
• Home working: GBP 26 x 12 = GBP 312.
• Total flat-rate deduction: GBP 3,912.

Actual-cost method:

• Car running costs of GBP 6,200 a year, with HMRC accepting 70% business use, gives GBP 4,340. But she would also need to claim capital allowances rather than mileage, which adds complexity.
• Home costs: total household bills of GBP 4,800, one of six rooms used wholly for business for most of the working day, giving roughly GBP 700.
• Total actual deduction: around GBP 5,040.

Here the actual-cost method gives roughly GBP 1,128 more in deductions. For a basic-rate taxpayer paying 20% income tax plus 6% Class 4 National Insurance on profits between GBP 12,570 and GBP 50,270, that extra GBP 1,128 deduction saves about GBP 293 in tax and NI. The trade-off is keeping every receipt and a usage log.

When simplified expenses win

The flat-rate route tends to be better when:

• Your vehicle is cheap to run or you do not own it outright, so capital allowances would be small.
• Your home bills are modest and you work irregular hours.
• You value the time saved on record-keeping more than a marginal tax saving.

Remember you cannot use the 45p mileage rate if you have already claimed capital allowances on that same vehicle. Once you choose mileage for a vehicle, you stick with it for as long as you own it.

When actual costs win

Actual costs usually beat the flat rates when:

• You have a high-mileage or expensive vehicle and could claim meaningful capital allowances.
• You run a dedicated home office with significant energy and rent or mortgage interest costs.
• Your profits push you into the higher-rate band at GBP 50,270, where every extra deduction is worth 40% income tax plus 2% NI.

How this fits your tax return

Your total allowable expenses reduce your taxable profit, which then feeds into income tax and Class 4 National Insurance. With the Personal Allowance at GBP 12,570 and the higher-rate threshold at GBP 50,270, the method you pick can shift you across a band. It is worth running both calculations once a year rather than defaulting to one.

To see how a change in deductions affects your final bill, try the calchub.uk self-employed tax calculator, and check the current flat rates and rules on the simplified expenses pages at gov.uk before you file.