What is simplified expenses for self-employed people?
Answered 11 March 2026
Simplified Expenses for Self-Employed People
What the law says
Simplified expenses are governed by Chapter 5A of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005). The rules allow businesses to calculate certain expenses using flat rate allowances or adjustments rather than apportioning actual expenditure.
The scheme covers three categories of expense:
1. Motor Vehicles (s.94D ITTOIA 2005)
A fixed rate per business mile can be used to compute vehicle expenses as an alternative to keeping detailed records of actual expenditure. The rates are:
| Vehicle | Rate |
|---|---|
| Cars and goods vehicles – first 10,000 miles | 45p per mile |
| Cars and goods vehicles – after 10,000 miles | 25p per mile |
| Motorcycles | 24p per mile |
The number of people in the vehicle does not affect the rates.
The mileage rate covers the costs of buying, running and maintaining the vehicle (fuel, oil, servicing, repairs, insurance, vehicle excise duty, MOT and depreciation), but does not cover incidental journey expenses such as tolls, congestion charges and parking fees.
Once adopted for a vehicle, the mileage rate basis must be applied consistently for as long as that vehicle remains in the business. The business can only change to or from an 'actual' basis when a vehicle is replaced. If capital allowances have ever been claimed on a vehicle, the mileage rate cannot be used for that vehicle.
2. Use of Home for Business Purposes (s.94H ITTOIA 2005 — BIM75010)
Where a self-employed person works from home, a flat rate monthly deduction can be claimed based on hours worked per month, as an alternative to apportioning actual household costs.
3. Private Use of Business Premises (s.94I ITTOIA 2005 — BIM75015)
This applies where premises are used mainly for trade but are also used as a home. Instead of the standard apportionment deduction, a flat rate is deducted from total expenses based on the number of relevant occupants (individuals who occupy or stay at the premises otherwise than in the course of the trade):
| Number of relevant occupants | Monthly applicable amount (deducted from expenses) |
|---|---|
| 1 | £350 |
| 2 | £500 |
| 3 or more | £650 |
HMRC Guidance / Practice
Who can use simplified expenses?
The rules can be adopted by all sole traders and business partnerships (excluding those with a corporate partner), whether or not they also use the cash basis. They are entirely optional and there is no business income limit. Limited companies and partnerships with one or more corporate partners cannot use the rules.
It is optional — but choose carefully
HMRC guidance makes clear that once a choice is made, it cannot be reversed retrospectively. For example, a sole trader who used the flat rate home deduction of £26/month in 2013/14 could not later claim overpayment relief simply because calculating actual costs would have produced a lower tax bill.
Partnerships using home for business
Where two or more partners share a home, only one deduction is available in calculating partnership profits. Where partners work different hours, the flat rate is based on aggregate hours worked (no hour counted more than once). Only partnerships comprising solely individual partners can claim simplified expenses.
Example — private use of business premises
Sue runs a bed and breakfast and lives there with her son. With 2 occupants, the monthly flat rate deduction for private use is £500. When her son leaves for university (1 occupant), the rate drops to £350 per month.
Citation sources
Sue runs a bed and breakfast and lives at the premises throughout the year with her son Stewart. Total expenditure on food, utilities, household goods, etc, is £15,000 in the year to 30 August 2014. In calculating trading income for the year, the allowable proportion of this expenditure is: - £ £ Total expenses - 15,000 Less 500 x 12 months (6,000) Flat rate for private use - - Allowable expenses - 9,000 Stewart leaves for university in September 2014 and returns to live at the bed and breakfast
A person may make a choice between alternatives allowable under the Taxes Acts which, with hindsight, leads them to pay more tax than they would have done had they made a different choice. This does not mean that the tax was not due. Example Simon is a sole trader who runs his business from an office in his home. Under the simplified expenses rules (BIM75010) he used a flat rate deduction of £26 per month to cover the use of his home for business purposes in his 2013/14 return. After the deadlin
and maintaining the vehicle, such as fuel, oil, servicing, repairs, insurance, vehicle excise duty and MOT. The rate also covers depreciation of the vehicle. Costs not covered by the mileage rate The mileage rate does not include incidental expenses incurred in connection with a particular journey, such as tolls, congestion charges and parking fees. These will be allowable as a deduction where they are incurred solely for business purposes. Capital allowances If capital allowances have ever been
a reasonable estimate consistent with the underlying facts. The extent of trade use is a question of fact. Enquiries are only likely to be worthwhile where the amount claimed is significant and appears to be inconsistent with the nature of the taxpayer’s trade. Different traders organise their businesses in different ways. There is no fixed proportion of costs allowable in a particular type of business, although the same type of trade conducted in the same way may be expected to result in simila
Chapter 5A ITTOIA 2005 The Government has introduced simpler rules for some business expenses which can be used from April 2013 onwards. The rules allow businesses to calculate these expenses using flat rate allowances or adjustments rather than apportioning actual expenditure. The simplified expenses rules can be adopted by all sole traders and business partnerships (excluding those with a corporate partner), whether they also use the cash basis or not, and are entirely optional. Limited compan
S94D ITTOIA 2005 From 2013-14 onwards, businesses may use a fixed rate per business mile to compute their vehicle expenses under the new simplified expenses rules. They can use this method of relief as an alternative to keeping detailed records of actual expenditure. The fixed rate deduction covers expenditure in respect of the acquisition, ownership, hire, leasing or use of cars (except cars designed for commercial use, for example black cabs or dual control driving instructor cars), motor cycl
If two or more partners in the trade share a home only one deduction is available in calculating the partnership profits. Where the partners work different hours, the flat rate deduction is based on the aggregate hours worked and no hour is counted more than once. Where partners occupy different homes all partners homes are to be treated in the same way. Only partnerships comprising solely individual partners can claim this simplified expenses.