What Are Simplified Expenses?

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Transcript available below.

Calculating your business or self-employment taxes at the end of the tax year isn’t the easiest of tasks. You gather receipt upon receipt, accounting for every pound spent on supplies, overhead costs, and even accommodation.

Doing all this takes time, lots of time. Wouldn’t it be great to have a way to slash your tax-calculating time significantly?

Well, with something called “simplified expenses,” you can!

Simplified expenses are a bit like a rulebook for how much you should pay for a certain expense. By using a flat rate introduced by HMRC, you can skip some calculations and still meet your tax obligations — a win-win.

However, what exactly are simplified expenses and how do they work? We’ll answer these questions and more in this guide.

Read on to learn all about simplified expenses and how you can benefit from them the next time you do your tax return.

Ordinarily, when sorting out your taxes, you gather various receipts and documents that reflect your business expenditures. The next step is to meticulously account for each expense: adding them together and categorising them in line with the HMRC's rules for business tax responsibilities.

This process is not only time-consuming but also demands a keen eye for detail and strong numerical skills. It's a task that can considerably distract you from your primary business or side hustle.

To make this process more efficient, HMRC has introduced simplified expenses. Simplified expenses are a method for calculating certain business costs, like vehicle expenses or home office costs, using flat rates set by HMRC.

This approach uses set rates for common business expenses, allowing you to quickly assign each expense to its appropriate category and apply a fixed value.

The use of simplified expenses significantly reduces the time and effort needed for tax classification and computation. Importantly, it ensures that your tax reporting remains accurate, helping you avoid any possible penalties from HMRC.

Different expenses are covered by HMRC’s simplified expense schedules — for your convenience, we’ve laid them out here:

Work-From-Home Costs

If you’re running a side hustle from home or are self-employed, then simplified expenses can offer a flat rate solution to your tax calculations.

Your work-from-home simplified expenses depend heavily on how many hours you spend at home working. According to HMRC’s tax guidelines, you must work from home more than 25 hours a week to take advantage of the claim.

Here’s how much you can claim in work-from-home costs:

• £10 per month: You work from home for 25 to 50 hours per week each month.
• £18 per month: You can claim this much per month if you work 51 to 100 hours at home.
• £26 per month: Anything above 100 hours entitles you to £26 each month.

Vehicle Costs

Does your side hustle or business have a vehicle? Whether you’re running a delivery service or working from home, you claim certain amounts if your operations incur vehicle costs.

According to HMRC, you can claim 45p for up to 10,000 miles. However, you can only claim 25p for any additional miles travelled by your vehicle past the 10,000-mile threshold.

If your business vehicle is a motorbike, HMRC has a different rate for you — 24p per mile travelled, regardless of the mileage.

Living in Business Premises

Simplified expenses can be particularly advantageous if you live at your place of business. Under HMRC's guidelines, you can allocate a portion of your overall expenses to personal use, based on how many people reside in the property. This approach simplifies how you differentiate between business and personal expenses.

The allocation is determined per resident:

• For one resident: Deduct £350 per month from your total expenses to account for personal use.
• For two residents: The deduction increases to £500 per month.
• For three or more residents: You need to allocate £650 per month as personal expenses.

These figures are subtracted from your total expenses to ascertain the portion that's strictly for business use, simplifying your tax calculations.

To see how the calculations work in practice, let’s illustrate with an example:

Let's imagine you operate a bakery on the ground floor of a building where you and your spouse also live on the first floor. Throughout the year, your combined expenses for the entire building — encompassing both business and personal use — amount to £10,000.

Using the simplified expenses method, you first calculate the total expenses for the premises. Then, you adjust these expenses for personal use, based on the number of people living there. In your case, with two residents, HMRC provides specific flat rates to determine the portion of expenses attributed to personal use.

According to HMRC's flat rates:

• For two people living on the premises, the amount allocated for personal use is £500 per month.

Over the course of a year, this personal use allocation totals:

• 12 months x £500 = £6,000

Therefore, from your total expenses of £10,000, £6,000 is designated for personal use of the premises (that you cannot claim for tax relief). The remaining £4,000 (£10,000 total expenses less £6,000 allocated for personal use) is what you can claim as business expenses.

This figure of £4,000 is what you consider as deductible business expenses when calculating your taxable business income.

✅ Read our comprehensive guide on side hustles and your tax obligations.

Simplified expenses present an efficient solution to your tax calculator woes. By taking advantage of simplified expenses, you can expedite your calculations and benefit from deductions.

Because of the efficiency they provide, simplified expenses give you more time and mental bandwidth to focus on what matters most — making money from your side hustle.

For a more detailed exploration or personalised advice, contact a qualified Chartered Accountant.

Understanding simplified expenses is an excellent start, but it's only part of the bigger picture in tax management for your business.

Be sure to read our next article, 'HOW TO CLAIM BUSINESS EXPENSES TO SAVE TAX'. This guide offers an in-depth look at the conventional approach to claiming business expenses. It’s an indispensable read for ensuring that you’re maximising every possible tax benefit for your business. Stay informed and equipped to navigate the complexities of tax obligations, keeping your business financially sound and efficient.

HOW TO CLAIM BUSINESS EXPENSES TO SAVE TAX

🎧 Listen Now: Sidehustles.co.uk One-Minute Podcast

What Are Simplified Expenses?

Welcome to the Sidehustles.co.uk One Minute Podcast. In the next 60 seconds, we're sharing a real-world insight from our network of seasoned side hustlers. This quick tip is designed to offer you practical advice that you can apply immediately in your side hustle journey.

Today, we're talking about simplified expenses. A side hustler in our network who runs a successful side hustle alongside their full-time job, recently tapped into the benefits of using simplified expenses. This move transformed how they manage their business finances. Instead of painstakingly documenting every expense, they now utilise HMRC's flat-rate amounts for typical business costs. For example, as they work from home on their side hustle, they claim a fixed monthly rate based on the hours spent working there – ranging from £10 to £26. This method not only saved them significant time but also made their tax calculations much more straightforward. It's a smart, effective, and compliant way to handle business expenses, proving that even minor adjustments can have a major impact on managing the finances of a side hustle.

That's your one-minute real-world insight. Stay tuned for more!

https://www.gov.uk/browse/business/business-tax

https://www.sidehustles.co.uk/delivery

https://www.sidehustles.co.uk/work-from-home

https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home

https://www.gov.uk/simpler-income-tax-simplified-expenses/living-at-your-business-premises