What is the cash basis?
Many small business owners choose to use the ‘cash basis’ to calculate their taxable income. This means that participants will be taxed upon the cash that is passed through their books.
The cash basis is useful for businesses as they do not have to predict their future income and expenditure that has not been received or paid out yet.
What are simplified expenses?
HMRC have introduced ‘simplified expenses’ to complement the cash basis.
This means that you do not need to work out the exact cost of certain expenses, but instead deduct a standard or a flat rate amount.
The following expenses can be classed as simplified expenses:
- Flat rate adjustment for personal use of home
- Standard mileage rate for business use of cars or motorcycles
- Flat rate adjustment for personal use of business premises
Make sure that you keep a record of all of the business miles for vehicles, the number of hours worked at home and the number of people living at the business premises for the tax year.
HMRC will use flat rates to work out the expenses at the end of the tax year, which should then be included in your self-assessment tax return.
The flat rate millage allowances are to cover all of the vehicle-related running costs.
The current rates are:
- 45p per mile for the first 10,000 miles
- 25p per mile for anything exceeding 10,000 miles
- 24p per mile for motorbikes
You do not have to use mileage rates, but once you have used them for a vehicle you have to continue until the vehicle is not used for business purposes.
As well as claiming mileage rates you can also claim for other travel expenses such as train journeys and parking.
What are the conditions?
If a car is purchased for business use, then capital allowances can be claimed. But if simplified expenses are used to calculate the business expenses for the vehicle, then capital allowances cannot be claimed.
Business use of home
There are monthly deductions that are allowable if you use your home for business use.
The current rates are:
- 25 to 50 hours – monthly amount of £10
- 51 to 100 hours – monthly amount of £18
- 101 or more hours – monthly amount of £26
Make sure that you only record the number of hours that have been worked wholly and exclusively for the purpose of the trade at the home.
Mixed use properties
If you use a property for both business and private purposes, then the standard deduction rates above apply, but you can also make a deduction for the non-business use of the property.
The allowable deduction will be the amount of expenses incurred, less the non-business use amount.
The non-business use amount is the sum of the applicable amounts for each month, or part of a month, falling within the period in question.
The amounts are:
- 1 relevant occupant – £350
- 2 relevant occupants – £500
- 3 or more relevant occupants – £650
A relevant occupant is someone who occupies the premises as a home.
What are the benefits?
The benefits of simplified expenses are that they help reduce business and household costs without the need of keeping a lot of paperwork.
Make sure that you are aware that like any flat-rate scheme, simplified expenses can result in increased tax liability.
There are checks that should be made before choosing a flat rate scheme as it is not the best option for everyone.
You should make sure that you are taking advantage of simplifying your expenses to reduce your business and households costs.
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