In my earlier post on ‘Simple Sole Trader and Tax Accounts‘ I explained how important it is to keep good records of your business expenses. Sole traders and partnerships (with no corporate partners) can claim what are known as ‘flat rate’ expenses, if you so wish. You don’t have to claim these, but the option is there. Remember, you will still need to keep records to justify your income and any other expenses.
Flat rate expenses can be claimed for:
- Business cost for vehicles;
- Working from home; and
- Living in your business premises.
Remember, you cannot claim expenses twice. So if you are already claiming capital allowances on a motor vehicle, or for the travelling costs already, you cannot claim these again using the flat rate scheme.
Cars and Goods Vehicles
Yoi can claim a flat rate mileage allowance as follows, remember you will need to keep a record of the journeys you make, as well as your mileage reading at the start and end of your accounting year. (As is often the case, ‘simple’ is a relative concept!).
You may claim mileage as follows:
- Cars and goods vehicles, 45p per mile for the first 10,000 miles; then
- For mileage over 10,000 miles, 25p per mile.
- Motorcycles have a flat rate of 24p per mile.
So, if you travel 12,000 business miles a year in your car, you claim:
- 10,000 miles at 45p a mile, £4,500; and
- 2,000 miles at 25p a mile, £500.
- This gives a flat rate claim in your accounts of £5,000.
If you use more than one vehicle, for example a car and a van, you can use different methods for each vehicle, say the flat rate expenses for the car and the actual costs for the van. What you can’t do is chop and change; you have to stick with whatever method you use for each vehicle.
Working from Home
If you work 25 hours or more a month from home, you can claim a monthly flat rate. This rate excludes telephone and internet access, which you claim separately based on the business proportion of the actual cost:
- 25-50 business hours a month, £10/month;
- 51-100 business hours a month, £18/momth; and
- 100 or more hours a month, £26/month.
You work out the hours for each month, so say January to October you worked 30 hours a month from home, then November 60 hours and December 125 hours, you’d claim:
- January to October, 10 months at £10/month is £100;
- November, £18 and December, £26;
- Total £100+£18+£26 comes to £144.
The maximum claim is £312 for the year.
Living at Your Business Premises
This final ‘flat rate’ method is less common, applying to guest houses, bed and breakfasts and small care homes, where you are using your home as your business premises. This is more a method of finding the ‘private use’ proportion of the business expenses, rather than an expense claim in itself.
First, journey work out all your actual expenses as normal. What you then do, is deduct an amount from the expenses to reflect the number of people, including yourself, who live at the business premises as follows:
- One person, £350 a month flat rate;
- Two people, £500 a month flat rate; and
- Three of more people, £650 a month flat rate.
So, you work out your expenses as normal, and then deduct from these costs an amount to reflect who lived with you throughout the year.
As an an example, suppose the business expenses of the guest house you and your partner run were £21,000 for the year. As there are two of you, for the full year, you will have to deduct 12 months at £500, which is £6,000 from these expenses, so claiming £15,000 for the year. If the other person is there only part of the year, you can work this out ‘pro-rate’.
So, in the example above if your partner joined you half way through the year for six months, your calculation would be 6 at £350 plus 6 at £500, £2,100 plus £3,000 is £5,100. Assuming expenses were £21,000, you claim £21,000 less £5,100 which is £15,900.
There are some circumstances where these flat rate expense allowances sell you short. HMRC have produced a handy interactive guide to help you check if simplified expenses work for your business. Of course, if you have any questions you’re welcome to drop me an email Miranda@MJY-CA.com.