title: "Simplified Expenses vs Actual Costs: Which Saves More?" slug: "simplified-expenses-vs-actual-costs" meta_description: "Simplified expenses vs actual costs for UK sole traders: compare HMRC flat rates and real spending, see which method saves more tax, then check your figures." primary_keyword: "simplified expenses vs actual costs" secondary_keywords: ["HMRC flat rate expenses", "self-employed mileage allowance 55p", "working from home flat rate", "sole trader vehicle expenses", "simplified expenses calculator"] category: "Bookkeeping" audience: ["UK taxpayers"] author: name: "Harvinder Dhillon" title: "Founder, Zmartly" reviewer: name: "Kiran Boparai" date_published: "2026-06-03" date_reviewed: "2026-06-03" tax_year: "2026/27" hero_image: "/images/blog/simplified-expenses-vs-actual-costs.webp" hero_alt: "Sole trader comparing flat-rate and actual-cost expense calculations at a desk" canonical: "https://www.zmartly.co.uk/blog/simplified-expenses-vs-actual-costs"
When you weigh simplified expenses vs actual costs, most low-mileage sole traders who work from home save time, and often tax, with simplified expenses, because the flat rates are generous against modest real bills. That holds especially from 2026/27, now that the car and van mileage rate has risen to 55p a mile. But if you run an expensive vehicle, or use a large part of your home for work, claiming actual costs can still give the bigger deduction. The only way to be sure is to run both numbers for your own situation.
This guide shows how each method works in the 2026/27 tax year, where the cut-off usually falls, and how to choose.
What Are Simplified Expenses?
Simplified expenses are HMRC flat rates you can use instead of working out the real business cost for three things: vehicles, working from home, and living at your business premises. You apply a fixed rate per mile or per month, rather than adding up receipts and apportioning bills.
They are optional, and they only cover those three areas. Everything else, stock, software, accountant's fees, marketing, is always claimed at actual cost.
You can only use the method if you are a sole trader or in a partnership. Limited companies cannot use simplified expenses, apart from the mileage rate for company directors using their own car.
The Flat Rates for 2026/27
Vehicle Mileage Rates
Instead of claiming fuel, insurance, servicing, repairs and capital allowances, you claim a flat rate per business mile. From 6 April 2026 the car and van rate rose from 45p to 55p a mile, its first change in 15 years:
| Vehicle | First 10,000 business miles | Each mile over 10,000 |
|---|---|---|
| Cars and vans | 55p | 25p |
| Motorcycles | 24p | 24p |
One catch: once you use the flat mileage rate for a particular vehicle, you must keep using it for that vehicle for as long as it stays in the business. You cannot switch to actual costs later for the same car, and you cannot claim capital allowances on a vehicle you run on the flat rate.
Working-From-Home Flat Rate
If you work 25 hours or more a month from home, you can claim a flat monthly amount based on the hours worked:
| Hours worked per month | Flat rate per month |
|---|---|
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 or more | £26 |
The maximum is £312 a year. Telephone, mobile and broadband are not covered by the flat rate, so you can still claim the business proportion of those bills separately on top.
Living at Your Business Premises
If you live on the premises, for example a guesthouse or small care home, you deduct a flat private-use amount from your total costs, based on how many people live there. Most sole traders won't use this one.
What Does "Actual Costs" Mean?
Actual costs means you add up the real money spent and claim the business proportion. For a car that's all your motoring costs, fuel, insurance, road tax, MOT, repairs, plus capital allowances on the vehicle itself, multiplied by your business-use percentage. For home working it's a fair slice of rent or mortgage interest, council tax, utilities and home insurance, usually apportioned by rooms and time used.
Actual costs need better records, mileage logs, receipts, a defensible apportionment, but they can be worth considerably more when your real spending is high.
Where the Break-Even Point Usually Falls
Vehicles
The 55p rate is designed to cover an average car's running costs. If you drive a cheap, fuel-efficient car a long way for business, actual costs rarely beat 55p a mile. But if you've bought an expensive vehicle, the capital allowance alone can tip actual costs ahead, especially with a new electric car, where the first-year allowance makes the actual-cost route attractive. (Benefit-in-Kind only applies to company cars, not sole-trader mileage, so it doesn't enter this comparison.)
Quick rule of thumb: low-value car, high miles, choose 55p. High-value car, modest miles, model both.
Home Working
The flat rate caps at £312 a year. If you rent a flat and use one room full-time as an office, your actual apportioned share of rent and bills will often clear £312 comfortably, so actual costs win. If you work a few hours a week at the kitchen table, the flat rate is simpler and usually lands in much the same place.
A Worked Example: Simplified vs Actual
Priya is a self-employed consultant. She drives 8,000 business miles a year in a three-year-old hatchback and works about 60 hours a month from her rented flat.
- Simplified: 8,000 × 55p = £4,400 mileage + £18 × 12 = £216 home = £4,616, plus the business share of her phone and broadband.
- Actual: her real motoring costs work out at roughly £2,900 for business use, and her apportioned home costs at about £950 = £3,850.
Simplified beats actual by more than £750, so Priya picks simplified, gaining both a bigger deduction and lighter record-keeping. Swap in a £40,000 electric car and 3,000 miles, though, and actual costs would pull ahead.
The deduction reduces her taxable profit. With the personal allowance at £12,570 and the higher-rate threshold at £50,270, a £4,616 deduction saves £923.20 in tax for a basic-rate taxpayer, or £1,846.40 at the higher rate, so the choice matters more the more you earn.
You can see the effect on your own bill with our self-employed tax calculator.
Can You Mix Methods?
Yes, within limits. You can use simplified for your vehicle but actual costs for your home, or the other way round, in the same business. What you cannot do is mix methods for the same item: you can't claim 55p a mile and also claim part of the fuel. And once a vehicle is on the flat rate, it stays there.
If you're below the £1,000 trading allowance, you may not need to claim expenses at all, the allowance can be simpler than either method. Note that simplified expenses have nothing to do with the £90,000 VAT registration threshold; they only affect your income tax profit.
Frequently Asked Questions
Is simplified expenses better than actual costs for most people?
For low-mileage sole traders who work from home part-time, simplified expenses are usually better value once you count the time saved, and the 2026/27 rise to 55p a mile made the flat rate more attractive still. Anyone with an expensive vehicle or a dedicated home office should model both.
Can a limited company use simplified expenses?
No. Simplified expenses are only for sole traders and partnerships. A limited company must use actual costs, though directors can still be reimbursed at the 55p/25p mileage rate for using their own car.
Do I have to use the same method every year?
For home working and premises, you can review and switch each tax year. For vehicles you cannot: once you apply the flat mileage rate to a vehicle, you must keep using it for that vehicle until you stop using it in the business.
Does the home-working flat rate cover my phone and internet?
No. The flat rate only covers things like heat, light and power. You can claim the business proportion of your phone, mobile and broadband bills separately, on top of the flat rate.
For the full official rules and the current flat-rate bands, see HMRC's guidance on simplified expenses if you're self-employed. Our FAQ page answers more common bookkeeping questions.
Not sure which method leaves more in your pocket? We'll run both calculations against your real figures and apply whichever is allowed and larger. Get in touch with Zmartly and we'll sort it before your next return is due.
