Simplified Expenses: When Fixed Rates Beat Actual Costs for Sole Traders

What Are Simplified Expenses?

Simplified expenses are a set of flat-rate allowances approved by HMRC that sole traders and business partnerships can use instead of calculating their exact costs. They cover three main areas: vehicle mileage, working from home, and living on your business premises. Limited companies cannot use this scheme — it is exclusively available to self-employed individuals and unincorporated partnerships.

The appeal is straightforward: instead of keeping receipts for every tank of fuel or calculating the business proportion of your electricity bill, you apply a government-set rate and move on. But simplified expenses are not always the better choice, so it pays to understand both options before you file your Self Assessment return.

Vehicles: The Mileage Rate Method

If you use a car, van, or motorcycle for business, you can claim a flat rate per mile rather than working out the actual running costs (fuel, insurance, servicing, depreciation) and apportioning them between business and personal use.

For the 2025/26 tax year, HMRC's approved mileage rates are:

• Cars and vans: 45p per mile for the first 10,000 business miles, then 25p per mile above that
• Motorcycles: 24p per mile
• Bicycles: 20p per mile

The mileage method tends to win when your car is relatively new, fuel-efficient, or you drive fewer than 10,000 business miles a year. Once you choose the mileage method for a vehicle, you must stick with it for the life of that vehicle — you cannot switch to actual costs later. This makes the decision at purchase particularly important.

The actual cost method can outperform mileage rates if you drive a high-mileage, older vehicle with significant running costs, especially if the vast majority of your driving is for business. In that case, tracking real expenditure and claiming capital allowances may yield a larger deduction.

Working From Home: Flat Rate vs Actual Costs

If you work from home regularly, you can claim a monthly flat rate based on the number of hours you work there each month:

• 25 to 50 hours: £10 per month
• 51 to 100 hours: £18 per month
• 101 hours or more: £26 per month

This is simple to apply and requires no calculations around floor space or utility bills. However, the flat rates are modest. If you heat a large home office, run multiple monitors, or your broadband and phone costs are substantial, calculating the actual business proportion of your household bills could return a meaningfully higher deduction. For many freelancers working full-time from home, actual costs will win — but you will need good records to support your claim.

Living on Business Premises

If you live where you work — for example, running a bed and breakfast or a farm — HMRC allows a flat-rate deduction for the private use of those premises. The monthly adjustment ranges from £350 for one person to £600 for three or more people living there. This avoids the complex exercise of splitting household costs between business and personal use.

How to Decide: A Practical Rule of Thumb

Ask yourself two questions before choosing a method:

• Do I have complete, accurate records? Simplified expenses require minimal record-keeping. Actual costs require receipts, logs, and calculations. If your record-keeping is inconsistent, simplified expenses reduce your audit risk.
• Are my actual costs significantly higher than the flat rate? Run a quick estimate. If actual costs are only marginally higher, the administrative simplicity of fixed rates is usually worth it.

You are not locked into one approach across all three categories. You could use the mileage rate for your vehicle but claim actual costs for working from home — mix and match based on what benefits you most.

Recording Your Claim

Whichever method you choose, record it consistently throughout the tax year. For mileage, keep a log showing the date, destination, purpose, and miles driven for each business journey. HMRC can and does challenge mileage claims without supporting evidence. Report your chosen method on your Self Assessment return under the relevant expense category.

If you are unsure which approach is right for your situation, the EasyTax expense calculator can compare both methods using your actual figures before you commit.