Did you know that you can make your life simpler and avoid drowning in big piles of receipts all year before doing your tax return? Instead of needing all of the detailed expenditure for your business, you can actually claim a fixed rate deduction for certain expenses.
This is available for motor expenses and for additional household expenses when you use your home for business purposes.
You can claim a fixed rate deduction for motor expenses. This is a fixed amount per mile that your drive on business. The amount covers the cost of buying, running and maintaining your car – it’s intended to cover the cost of fuel, insurance, car tax, MOT, repairs and services.
The use of the fixed rate is optional and is available to sole traders and partnerships. (If you own a Limited Company, you can pay this rate to an employee who uses their car for business. And you do count as an “employee”.)
The fixed mileage rates are as follows:
Cars and goods vehicles
- First 10,000 miles – 45p per mile
- Subsequent miles – 25 per mile
- 24p per mile
Once you have decided to use the flat rates, you must continue to do so whilst the vehicle remains in the business.
You can’t claim capital allowances if you use these rates. You also can’t switch to the fixed rates if you’ve already claimed capital allowances on the current car. For each vehicle, you have to choose which you want…..and stick to it.
Use of home
You can also claim a fixed rate deduction for the use of your home for business. The flat rate provides an allowance for additional household running expenses incurred, ie the additional costs of light, heat, broadband, phone, etc.
The deduction is based on the total number of hours that you spend working at home each month on “core business activities”. Core business activities are providing goods or services, maintaining business records, and marketing and obtaining new business.
The monthly fixed amounts you can claim are as follows:
- 25 or more hours per month – £10
- 51 hours or more – £18
- 101 hours or more – £26
Rachael is a business coach. She mainly works at client sites but also works from home in preparing her sessions and looking after the business admin and marketing.
In the year ended 5 April 2016, she spent 40 hours a month working in her home and she drove 12,000 business miles.
To save time and effort when preparing her tax return, she decides to claims the flat rate deductions.
For the car, she claims a deduction of £5,000, ie 10,000 miles at 45p per mile (£4,500) plus 2,000 miles at 25p per mile (£500).
For the use of home for business, she can claim a deduction of £10 per month – an annual total of £120.
You can save time by claiming fixed rate deductions. This also removes the need to keep detailed records of actual costs.
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