HM Revenue and Customs Brief 14/13
Submit Articles Back to Articles
Issued 2nd July 2013
Direct Tax: Simpler Income Tax: Simplified Expenses
Purpose of this brief
- To announce the withdrawal of non-statutory 'business
mileage' deductions and
agreements for 'board and lodging' private use
adjustments, now superseded by the 'simplified expenses'
rules as part of 'simpler income tax for small businesses' legislation.
- To set out transitional arrangements for the withdrawal of
'board and lodging' agreements.
- To explain how businesses can use the 'simplified expenses'
rules for business mileage, 'board and lodging' private use
adjustments and flat rate adjustment for use of home.
Who should read this brief
All sole traders and business partnerships (and their
advisers) that need to be aware of rules on:
- 'Business mileage' deductions.
- 'Board and lodging' private use adjustments.
- 'Use of home for business' deductions.
1. 'Business mileage' deductions
A non-statutory mileage rate scheme was previously available
to small businesses, which allowed a deduction for business mileage to
be computed using the 'Approved Mileage Allowance Payments (AMAP)'
rates applicable under employment income rules.
With effect for the tax year 2013/14 onwards, we are
withdrawing this non-statutory scheme as the simplified expenses rules
now provide a statutory basis to allow deductions for expenditure on
motor vehicles to be computed using a similar, simple method. The new
rules apply to all sole traders and business partnerships and provide
relief for the costs of buying, maintaining and running the vehicles.
Simplified expenses: expenditure on motor vehicles
Under the 'simplified expenses' rules, businesses can
calculate allowable expenditure on vehicles using a flat rate based on
mileage. This means that actual costs incurred do not need to be
recorded, nor do capital allowances need to be calculated.
Businesses can choose to use the flat rates. However, once the flat
rate has been used in relation to a particular vehicle, this method of
calculation must continue to be used for as long as the vehicle remains
in the business. If capital allowances have already been claimed in
respect of a particular vehicle, then the flat rate cannot be claimed
in respect of that vehicle.
Where the 'simplified expenses' rules are not used, allowable
expenses and capital allowances are calculated in the normal way unless
the business has opted to use the cash basis, in which case capital
allowances are only used for cars.
The rates per mile that can be claimed under the flat rate
scheme are shown in the table below.
Flat rate per mile with simplified expenses
Cars and goods vehicles first 10,000 miles
Cars and goods vehicles after 10,000 miles
2. 'Board and Lodging' private use adjustments
Historically, some HMRC offices have entered into 'board and
lodging' agreements with small hotel and guest house businesses. These
provided a practical basis for agreeing private use adjustments in
respect of use of the premises by the proprietor(s) and their family.
We are withdrawing these agreements because:
- all businesses currently using such an agreement will be
able to use the 'simplified expenses' rules instead, and
- this will provide a statutory method for calculating
private use adjustments on a simple, fair and consistent basis.
Simplified expenses: premises used both for business and
Where business premises are used partly for private purposes
as a home, under the 'simplified expenses' rules, businesses can choose
to make a private use adjustment based on a flat rate amount . This
amount is subtracted from actual expenses incurred to arrive at the
amount deductible as a business expense.
Only premises used mainly for the purposes of carrying on a
trade will qualify.
The flat rate amount is based on how many people (including
children) use the business premises each month or part of a month as a
private home. The flat rate includes all household goods and services,
food and non-alcoholic drinks and utilities. It does not include
mortgage interest, rent of the premises, council tax or rates. A
reasonable apportionment of these expenses should be made based on the
extent of the private occupation of the premises.
The flat rates are as follows:
|Number of people
||Flat rate per month
3 or more
The use of the 'simplified expenses' method for private use of
business premises is entirely optional. If the 'simplified expenses'
rules are not used, the private use adjustment should be made under the
normal statutory basis in which case records will need to be kept in
order to make accurate adjustments.
Transitional arrangements for withdrawal of 'Board and
All 'board and lodging' agreements are withdrawn with effect
from the 2013/14 tax year and no business can use them for the first
time for the 2013/14 tax year.
We recognise, however, that some businesses currently using
these agreements may need more time to prepare for the change,
particularly in cases where the business opts not to use the
'simplified expenses' method and needs to maintain full records.
As such, for the 2013/2014 tax
year only, any business
which has used a previous agreement with HMRC for the 2012/13 tax year
can also use it for the 2013/14 tax year, as an alternative to either
the 'simplified expenses' method or the normal statutory basis.
3. 'Use of home for business' deductions
Simplified expenses: use of home for business
The 'simplified expenses' rules also allow sole traders and
business partnerships to claim a flat rate deduction in respect of 'use
of home for business' as an alternative method to recording actual
expenditure and apportioning the business element.
The monthly flat rate includes all household running costs,
such as heat, light, power, telephone and broadband/internet costs.
The rates are as follows:
|Number of hours worked
||Flat rate per month
25 or more
51 or more
101 or more
Businesses can choose whether or not to use the 'simplified
expenses rules' applying to 'use of home for business'. If these rules
are not used, businesses will need to use the normal statutory method
If a business does not wish to use the simplified expenses
for business use of home, then where private use of telephone/internet
costs does not form a significant proportion of the service use, we
will accept that the full amount of expenditure can be claimed.
To find out more about 'simpler income tax for small
businesses', (including simplified expenses for business use of home)
follow the links below:
Technical Note published on 28 March 2013
Income Tax: simplified expenses - GOV.UK (Opens new window)
About the Author
© Crown Copyright 2013.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2013-07-04 09:11:23 in Tax Articles