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Business Matters

Flat Rate Expenses - No receipts required?

Tax simplification is always welcomed especially by accountants whose job has become ever more difficult. [Pause for sympathetic noises...] but the latest attempt at simplification is not likely to be adopted by many.

Almost everyone will know that there is a flat rate of expense for using your car on business whether as an employee or as a self employed person. There are times when our clients find one or the other advantageous but you cannot apply both to the same vehicle. For those still puzzling a little, 45p per mile for the first 10,000 business miles and 25p per business mile thereafter. If you're VAT registered you can also claim a tiny amount of VAT based on the fuel element of the mileage rate. Many people though would find it hard to finance and run a vehicle based on the miserly HMRC rates and so opt for the more detailed actual costs method which DOES involve keeping receipts.

The other main type of expense which is universally applicable is the use of home as a business premise/ office. This affects many of the UK's small businesses, especially in the early years, who by and large work from home.

Motor expenses are simple really, record the number of business miles and/or keep actual receipts and your claim is sorted. Use of residence is potentially much more complicated. While the usual method is to simply decide how much of the home is used for business and then apportion the total costs over the year on that basis (i.e. £1400 running costs and using one seventh of the home for business giving an annual cost of £200) more correctly you should be looking at the actual times spent working at home and the ADDITIONAL costs of working from home rather than simply taking a share of the whole costs of your household expenses.

HMRC has a schedule of fixed flat rate expenses for use of home as an office:

Use of Residence Flat Rate Expenses
No of hours per monthre"> Allowed per year
25 - 50 £120
51 - 100 £216
101 or more £312

But I'm sure that these, like most of HMRC's Flat Rate Expenses understate the costs rather than represent the real costs of providing the facility.

The good news is that it is not compulsory: you can continue to use actual costs OR flat rate costs but not a mixture of both. My recommendation is to check the numbers very carefully before reaching your decision!

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