Simplified expenses
You can use so-called “simplified expenses” if you’re self-employed or a partner in a partnership (but not if the partnership has a corporate partner) and you work from home, live on your business premises or use your vehicle for business journeys. It isn’t really any simpler for you to administer but it can increase the amount of tax relief you get for such expenses.
Unless a business is very small, banks will expect accounts to reflect actual expenses and not HMRC’s simplified figures. This means you might still need to record the actual costs.
Increased mileage rate
The amount you can claim as a flat rate expense for business mileage has increased for the first time in 15 years. For the first 10,000 miles, the rate has increased by 10p from 45p to 55p per mile. It doesn’t sound like much but if you do drive 10,000 miles on business in a tax year, that’s an extra £1,000 of tax relief. If you’re a higher rate taxpayer that’s an extra £400 (£1,000 x 40%) in your pocket.
The rates for motorcycles (24p) and car/van journeys exceeding 10,000 miles (25p) per year have not changed. The government intends to review and update those in a future Budget.
Can you use it?
Before doing any sums you should first check whether you’re eligible to use simplified expenses for motoring costs.
Flat rates can’t be used for vehicles for which you’ve claimed capital allowances (CAs), i.e. a tax deduction for the cost of a vehicle or, if using the cash basis, you’ve deducted the cost of the car. If you’ve claimed CAs or the cost of the car, you’ll have to wait until you stop using the existing vehicle to switch to simplified expenses.
You can use simplified expenses for cars or vans, but not cars that are designed for commercial use such as black cabs or driving instructor’s cars. Once you start you must continue using the flat rate until you stop using the vehicle in your business.
What does it cover?
The deduction is to cover the purchase and running costs of the vehicle from the time it’s first used for the business to the time it ceases to be. Expenses relating to a business journey rather than a vehicle, e.g. tolls and parking but not fuel, can be deducted in addition to the flat rate.
Is it tax efficient?
Whether the simplified deduction is more or less tax efficient than claiming the actual costs of buying and running a vehicle depends primarily on how much you paid for it. As a rule of thumb, the lower its cost and the greater your business mileage, the more likely it is that you’re better off using the flat rate. As you’ll need to keep a record of actual costs, it should be easy for you to make a comparison.