Simplified business expenses

Keeping every fuel receipt, splitting each energy bill and working out what share of your car is business use takes time most sole traders don’t have. HMRC offers a shortcut: a set of flat rates you can use instead of adding up real costs. The catch is that the shortcut isn’t always the cheaper option.

This guide explains simplified business expenses for 2026/27, who can use them, and how to tell with real numbers whether the flat rates or your actual costs give the lower tax bill.

What Are Simplified Business Expenses?

Simplified business expenses are optional flat rates set by HMRC. Instead of totalling what a cost really was, you multiply a fixed rate by your business miles, your hours worked at home or the months people live at your premises. The result goes on your tax return as the expense.

Who can use them

According to GOV.UK’s simplified expenses guidance, the flat rates are open to sole traders and to business partnerships that have no companies as partners. Limited companies can’t use them, and nor can a partnership with a company among its partners. Using them is a choice, not a requirement.

What they cover, and what they don’t

Simplified business expenses only replace three kinds of cost:

• Vehicles: the running costs of cars, goods vehicles and motorcycles used for business.
• Working from home: the extra heating, lighting and power you use.
• Living at your business premises: the private-use share of a guesthouse, B&B or small care home you also live in.

Every other cost, such as stock, software, advertising, insurance for the business and accountancy fees, is still claimed at its actual amount.

Why HMRC offers simplified business expenses

Splitting mixed-use costs is one of the hardest parts of a tax return. A car used for both school runs and client visits, or a spare room that is an office by day, needs a fair split that can be explained to HMRC. Simplified business expenses swap that judgement for a fixed rate, so the records are simpler and the claim is harder to get wrong. The trade-off is that the fixed rate won’t match your real costs exactly.

HMRC Simplified Expenses Rates for 2026/27

These are the flat rates for the 2026/27 tax year, taken from GOV.UK.

Sources: GOV.UK vehicles, working from home, living at your premises and the June 2026 mileage rate increase, checked 6 November 2026.

Flat Rates vs Actual Costs: Which Saves More?

Simplified business expenses save time, but they don’t always save tax. The quickest test is to compare the flat amount with what the cost really is for your business. These three examples show how that comparison works in practice.

Vehicles: find your cost per business mile

Divide your real running costs (business share) by your business miles. If the answer is below 55p, the flat rate is likely to give a bigger deduction for your first 10,000 miles. If it’s above 55p, actual costs may be better, especially in the year you buy a vehicle and can claim capital allowances on it.

The result can flip for a new van bought for the business. A trader who buys a £12,000 van and drives 12,000 business miles would get £6,000 from the flat rate (10,000 × 55p plus 2,000 × 25p).

With actual costs instead, the trader claims the business share of running costs and may also be able to claim capital allowances on the van, depending on the eligibility rules and how much it is used for business. How much is deducted, and when, depends on the van and how the purchase is treated for tax. Remember that the method you choose for a vehicle is locked in while you keep it.

Working from home: when £26 a month isn’t enough

Living at your premises: B&Bs and small care homes

Rules That Catch People Out

Most mistakes with simplified business expenses come from a handful of rules that are easy to miss.

• Capital allowances block the mileage rate. You can’t use the flat mileage rate for a vehicle you’ve already claimed capital allowances on, or whose costs are already included in your business profits.
• The vehicle choice sticks. After you pick the simplified mileage rate for a vehicle, you have to stay with it for that vehicle for as long as it remains in your business. You can’t move that same vehicle back to actual running costs or start claiming capital allowances on it. When you replace the vehicle, you can choose again.
• No double claims. The mileage rate already covers fuel, insurance, repairs and servicing, so you can’t claim those on top. Parking and other travel costs such as train fares can be claimed separately.
• Some cars are excluded. Cars designed for commercial use, such as black cabs and dual-control driving instruction cars, can’t use the flat rate.
• Phone and internet sit outside the home rate. The working-from-home flat rate doesn’t include them; claim the business share of those bills at actual cost.
• Under 25 hours, no flat rate. You need to work at least 25 hours a month at home to use it.
• The trading allowance replaces expenses. If you choose the £1,000 trading allowance, you can’t also deduct simplified or actual expenses.
• Cash basis is a separate choice. The cash basis decides when income and costs are counted; simplified business expenses decide how certain costs are worked out. You can use both together, with one exception: if you’ve already deducted the purchase cost of a goods vehicle or motorcycle under the cash basis, you can’t use the simplified mileage rate for that vehicle (see HMRC’s Business Income Manual, BIM75005).

What you can and can’t add on top

With simplified business expenses, some costs are already inside the flat rate and others can still be claimed alongside it. This quick reference is based on HMRC’s guidance.

Simplified business expenses for partnerships

A partnership can use simplified business expenses only if none of its partners is a company. The partnership decides the method for its own vehicles and premises, and the result flows into each partner’s share of profit. Where a partner drives their own vehicle on partnership business, record the mileage deduction the same way each time in the partnership accounts and allocate it correctly between the partners. A single business journey should never be claimed twice.

Can You Mix Methods or Switch?

Yes, within limits. You can use simplified business expenses for some areas and actual costs for others in the same tax return.

For example, a sole trader could use the mileage rate for an older car, claim actual costs and capital allowances on a new van, and use the working-from-home flat rate.

The fixed point is the vehicle rule: once a vehicle is on the flat rate, it stays there until you stop using it for the business. For working from home and living at your premises, HMRC’s guidance leaves it to you to decide whether the method suits your business. Check with an adviser before changing method from one year to the next.

Recording them on your tax return and MTD updates

Simplified business expenses are entered with your other business costs in the self-employment pages of your Self Assessment return. If you’re in Making Tax Digital for Income Tax, your software records them in its expense categories for each quarterly update. Keep the mileage log and hours records with your business records for at least five years after the 31 January deadline for that year.

Should You Use Simplified Expenses? A 5-Question Checklist

Work through these questions before you decide whether simplified business expenses suit you, or whether actual costs are the better fit.

1. Are you a sole trader or a partnership with no company partners? If not, the flat rates aren’t available.
2. Is your vehicle new, expensive to run or bought recently? If yes, actual costs plus capital allowances may give a bigger deduction. If it’s older and cheap to run, 55p a mile often wins.
3. How many hours a month do you work at home? Under 25, you can’t use the flat rate. Over 101, compare £312 a year with the business share of your real bills.
4. How good are your records? If keeping receipts is a struggle, simplified business expenses reduce the risk of missing or wrong claims.
5. Is your gross trading income close to or above £1,000? If so, compare the £1,000 trading allowance with your allowable business expenses before choosing, as the allowance is tested on income before any costs are taken off.

Simplified Business Expenses: FAQs

What does “simplified business” mean for tax?

In UK tax, it usually refers to simplified expenses: HMRC flat rates that self-employed people can use for vehicles, working from home and living at business premises instead of working out actual costs.

Can a limited company use simplified expenses?

No. They’re only for sole traders and partnerships with no companies as partners. Companies claim actual costs.

Is the 55p simplified mileage rate the same as the AMAP rate?

The headline car and van figures match in 2026/27: 55p a mile for the first 10,000 miles and 25p after that. But they are separate rules. Simplified mileage is an expense for eligible self-employed businesses, while Approved Mileage Allowance Payments (AMAPs) cover employers repaying employees who use their own vehicles for work.

Can I claim simplified expenses and the trading allowance?

No. The £1,000 trading allowance is used instead of all expenses, so you choose one or the other.

Do I still need receipts?

Not for the costs that simplified business expenses cover, but you need a mileage log and home-working hours, plus receipts for every other business expense.

Can I switch back to actual costs?

Not for a vehicle already on the flat rate; it stays there while you use it for business. For a new vehicle, you can choose again.

Do simplified expenses work with MTD for Income Tax?

Yes. You can still use them, and your MTD software records them with your other expenses in each quarterly update.

Final Verdict: Are Simplified Business Expenses Worth It?

For many sole traders, simplified business expenses are worth it: they cut paperwork, and with the mileage rate now at 55p they often beat the real cost of running an older car. They’re not automatically better, though. Compare your cost per mile and your real home costs before you choose, and take extra care with the vehicle decision, which you can’t reverse while you keep that vehicle.

Filing your own return? Our Self Assessment tax return service covers sole traders and partners, including expense claims.