What are simplified expenses when working from home? Learn how to claim expenses when working from home as a self-employed person here.
Millennials are tipped to be the most entrepreneurial generation yet, but the latest research published by Forbes suggests they may be overtaken by Generation Z with more than 50% wanting to run their own business.
The end result is more people are working as sole traders and many of them are running online businesses from home offices. A lot has been said on what employees can claim when working from home during the pandemic, but expenses can be claimed by self-employed people who work from home?
If you work from home as a self-employed person, you can claim expenses using pre-determined rates based on how many hours you work each month. Working out the definite costs of running a business from home can be tricky, especially when your bills also cover personal use when not working.
Simplified expenses is a way to avoid having to calculate the actual costs of running your business from home and using flat rates decided by HMRC instead.
It should be said that simplified expenses can be used to calculate vehicle costs, but as this post is dedicated to home working, we won’t be touching on this here. You can find out more on the HMRC simplified expenses for vehicles page.
Simplified expenses may be used by sole traders and partnerships that do not have partners who own limited companies. No limited company can use simplified expenses rates as expenses.
But we have made some free informative expenses downloads to help companies out!
Moreover, employees of a company who get paid via the Pay As You Earn (PAYE) scheme cannot claim simplified expenses. But they can still claim for having to work from home, either from their employer or HMRC directly.
The amount you can claim will depend on the number of hours you work each month. If you work between 25 and 50 hours, your monthly simplified expenses can be £10. For those working between 51 and 100 hours, the simplified expenses rate is set at £18. And for those working over 100 hours each month, their simplified expenses can be £26.
These simplified expenses are used to cover most business costs when working from home. For example, it covers the cost of heating the space you carry out your business (usually one room in the home).
But there are things that it does not cover. On top of this simplified expense amount, you can also claim internet costs and telephone costs if applicable. You will need to calculate the amount you spend on internet and telephone bills for the purpose of your business and do not claim for personal use, which is not always so straightforward.
To claim additional costs like internet and telephone expenses, it is best to speak with a qualified UK accountant. They will be able to help you claim the correct amount so you don’t over-claim or come up short.
One of the reasons so many people use simplified expenses is because it is extremely convenient. Working out actual expenses in a residence where you also live can be a minefield. However, that doesn’t mean you should always use simplified expenses.
Some business from home may be able to claim more by rejecting simplified expenses and working out costs for all of their bills manually. Naturally, this will take time so you might want to factor this into your decision.
If you want help deciding if you should be claiming simplified expenses or working out costs yourself, you can always crunch the numbers and get confirmation from a UK accountant. Sometimes the difference can be negligible but some home-based businesses can find a more advantageous position and reduce their tax liability by not using simplified expenses.
You can get help deciding if simplified expenses are right for you with Yorkshire Accountancy. We help with all types of expense queries to save your business money.