Comparison · Self-Employed Expenses · 2026
Simplified Expenses vs Actual Costs for Sole Traders UK 2026: Which Saves More?
Sole traders can claim business expenses in one of two ways: using HMRC's simplified flat rates for vehicles, home working and business premises, or by working out the actual business proportion of real costs. The flat rates cut paperwork, but they do not always give the biggest deduction. This guide compares the two methods using 2026/27 self-employed tax figures and shows how to decide.
TL;DR -- 30-Second Summary
- • Simplified expenses: flat rates for mileage (45p/25p), home working and premises; less admin
- • Actual costs: claim the real business proportion of each cost; more record-keeping
- • Mileage: flat rate excludes capital allowances and actual running costs on that vehicle
- • You can mix: flat rate for one area, actual for another -- but be consistent within an area
- • Sole traders only: limited companies cannot use simplified expenses
Side-by-Side Comparison
| Feature | Simplified Expenses | Actual Costs |
|---|---|---|
| Record-keeping | Low -- log miles and hours | High -- keep all receipts and bills |
| Vehicle claim | 45p/25p per mile flat rate | Business proportion of all running costs |
| Capital allowances on vehicle | Not allowed with flat rate | Allowed (AIA / writing-down) |
| Home working | Monthly flat rate by hours | Business share of household bills |
| Best for | High mileage, cheap car, simple home use | Expensive vehicle, dedicated office, high bills |
| Who can use it | Sole traders and partnerships only | Any business |
How Simplified Expenses Work
Simplified expenses replace a calculation of the actual business proportion of a cost with a flat rate set by HMRC. For vehicles, you claim 45p per mile for the first 10,000 business miles in the tax year and 25p per mile after that (24p for motorcycles). This single rate is deemed to cover fuel, insurance, servicing, repairs and depreciation.
For working from home, there is a monthly flat rate that increases with the number of hours you work from home: one band for 25 to 50 hours a month, a higher band for 51 to 100 hours, and a higher band again for 101 hours or more. It covers household running costs such as heat and light but not telephone or internet, which you claim separately on a business-use basis.
For traders who live at their business premises, such as a small guest house, there is a flat adjustment for the private element of costs. The appeal of all three is simplicity: you log miles or hours rather than keeping every receipt.
How Actual Costs Work
Under the actual cost method, you total the real costs and claim the business proportion. For a vehicle, that means adding up fuel, insurance, road tax, servicing and repairs, then claiming the percentage used for business. You can also claim capital allowances on the vehicle, such as the annual investment allowance or writing-down allowances, which the flat rate does not allow.
For home working, you identify the business proportion of household bills, often based on the number of rooms used for business and the time they are used. Where you have a dedicated home office and substantial heating, electricity and broadband costs, this can produce a much larger deduction than the flat rate.
The trade-off is record-keeping. You need receipts, bills and a reasonable, documented basis for the business proportion. For many traders the extra deduction is worth the effort, particularly for expensive vehicles where capital allowances matter.
Worked Example: 8,000 Business Miles
A sole trader drives 8,000 business miles in 2026/27 in a modest, fuel-efficient car. Their actual running costs attributable to business use come to GBP 2,800. Compare the two methods.
| Method | Calculation | Deduction |
|---|---|---|
| Simplified (flat mileage) | 8,000 miles x 45p | GBP 3,600 |
| Actual costs | Business share of running costs | GBP 2,800 |
Here the flat mileage rate gives GBP 3,600, which is GBP 800 more than the GBP 2,800 of actual costs. For a basic-rate sole trader, that extra GBP 800 deduction saves 20% income tax plus 6% Class 4 NI -- around GBP 208. For a cheap, efficient car with high business mileage, the flat rate usually wins. For an expensive car where capital allowances apply, actual costs may pull ahead.
When Simplified Wins, When Actual Costs Win
Simplified expenses win when:
- You drive a lot of business miles in a cheap, efficient vehicle
- You want minimal record-keeping
- Your home working is occasional and your bills are modest
Actual costs win when:
- You have an expensive vehicle and want capital allowances
- You have a dedicated home office and significant household bills
- Your real costs clearly exceed the flat-rate equivalents
- You are happy to keep detailed receipts and records