Many small businesses can choose to be taxed on the basis of the cash that passes through their books, rather than being asked to spend their time doing calculations designed for big businesses (‘cash basis’). Where the cash basis is used, it is also possible for the business to use certain simplified arrangements for claiming expenditure in working out taxable profits for income tax purposes. Flat rate expenses can be claimed for business costs for vehicles, working from home, and living at your business premises.
Where a trader runs his business from his home, he will be able to claim flat rate expenses for business use of the property. Using flat rates means it is not necessary to work out the proportion of personal and business use, for example, how much of utility bills are for business. Instead a monthly deduction will be allowable provided certain criteria are satisfied. The current rates are as follows:
- 25 or more hours worked per month can claim £10.00
- 51 or more hours worked per month can claim £18.00
- 101 or more hours worked per month can claim £26.00
The number of hours worked in a month is the number of hours spent wholly and exclusively on work done by the person, or any employee of the person, in the person’s home wholly and exclusively for the purposes of the trade.
Some businesses use their business premises as their home, for example, guesthouses. Where premises are used for both business and private use, the trader may, instead of making the standard deduction outlined above, make a deduction for the non-business use. The allowable deduction will therefore be the amount of the expenses incurred, less the non-business use amount. The non-business use amount is the sum of the applicable amounts (see below) for each month, or part of a month, falling within the period in question (usually the tax year). The applicable amounts are as follows:
- If there is 1 relevant occupant £350 can be claimed
- If there are 2 relevant occupants £500 can be claimed
- If there are 3 or more relevant occupants £650 can be claimed
A relevant occupant is someone who occupies the premises as a home, or someone who stays at the premises other than in the course of the trade.
Traders need to keep records of business miles for vehicles, the number of hours worked at home, and details of people living at the business premises over the year. A claim to tax relief can then be made on the relevant self-assessment return.
HMRC provide a simplified expenses checker, which can be used to compare what a trader can claim using simplified expenses with what he can claim by working out the actual costs. The checker can be found online at www.gov.uk/simplified-expenses-checker.