Flat rate expenses make it easier for people to submit tax relief claims for a set amount of work-related purchases each year. Unfortunately, the term can be a little confusing as it is relevant to a few different schemes. There are two types of flat rate expense schemes in effect:
- Flat rate expenses for employees
- Simplified expenses for self-employed people
Employee flat rate expenses
As an employee, flat rate expenses are designed to provide tax relief for a set amount of money without you having to provide receipts or track purchases. Depending on your job and industry, you’ll be eligible for a fixed flat rate which is written off against your overall tax bill. Common purchases covered by flat rate expenses include:
- Subscriptions and professional fees
- Working from home (£6 per week where eligible)
Self-employed people can instead use simplified expenses to apply a ‘flat rate’ to costs associated with running a business vehicle, living at business premises or working from home.
Rather than leaving you confused on the topic of flat rate expenses vs simplified expenses, we’re clearing everything up with this handy guide. We’ll start with a guide for employees and then discuss self-employment – so if you’re a sole trader, click here to jump to that section.
Criteria for eligibility
To be able to claim for flat rate expenses, you need to:
- Be an employee in a field which generally requires work-related expenses such as tool repairs, uniform purchases etc.
- Have paid income tax during each year you claim for.
- Only claim for a period no longer than four years.
- Check to ensure you don’t already have flat expenses included in your tax code.
What if your employer pays you back for expenses?
In some businesses, expenses are already covered by an in-house scheme. In these systems, employees can provide receipts for work-related costs to be repaid in their next salary payment. In these cases, you can’t claim for flat rate expenses – HMRC assumes your employer already covers your costs. Flat rate expenses are solely for employees who have to buy things for work but don’t get repaid for them.
Types of flat rate expenses and their worth
Flat rate expenses are designed around specific industries, usually as a result of trade union negotiations. Expenses are awarded based on agreed amounts for each job title. Some job titles are not covered in the HMRC table but may still be included – so it’s always worth finding the most relevant industry and job title to see how much you can claim.
Click here to jump down to the table, which we’ve included at the end of this article due to its length.
If you’re wondering what a flat rate expense is worth, the average amount you can claim for varies between £60-140. Some outliers exist, such as a flat rate expense of £1022 for pilots, co-pilots and uniformed flight deck crew and £720 for cabin crew.
A full list of qualifying professions and the costs you can claim for is available via the government’s website. Flat rate expenses don’t cover all work costs, and some professions are able to claim for additional tax relief for purchases such as:
- Tools and equipment bought for work, provided you have receipts
- Costs for travel associated with work
- Union memberships and professional subscription fees
If you’re unsure whether you can claim for flat rate expenses or other costs, our team would be more than happy to talk through your options. Get in touch today to learn more.
How to claim flat rate expenses
If you’re not used to doing your own tax returns, you may be intimidated by the idea of submitting your own claim for flat rate expenses. Don’t worry – the process is straightforward and depends on whether your employer has already accommodated for flat rate expenses.
If they have, you’ll see a change in tax code which will automatically apply the tax relief each year. If they haven’t, speak to your accounting department and ask why. Alternatively, you can apply for a tax rebate to cover any period over the last four years.
Simplified expenses for self-employed people
If you’re self-employed, you might also encounter the term ‘flat rate expenses’ as part of a wider concept called simplified expenses. These are designed to make it easier for self-employed people to complete tax returns without having to track each expense and, like the system for employees, apply a ‘flat rate’ for certain expenses.
Simplified expenses can only be used by sole traders or business partnerships with no companies as partners. They are only applicable to three specific costs and carry defined flat rates:
For all other claimable costs, you’ll need to follow the standard tax reporting system. In some cases, simplified expenses may not be beneficial and might mean you lose out on a significant amount of tax relief – so it’s up to you to work out whether the simplicity is worth the difference in tax relief. Use this government calculator to help give you an idea, or contact the team here at Crunch for a more detailed look at your business’s tax situation.
A note on working from home and flat rate expenses
Employees who work from home can’t use flat rates and instead must demonstrate compliance with fairly strict criteria outlined here to be able to claim any costs. For self-employed people, claims are easier due to simplified expenses, which provide a flat rate for WfH. This massively reduces the administrative burden of working out how much of your home expenditure is related to business.
To be eligible for flat rates, you need to work at least 25 hours per week from home. These rates can’t be used against phone or internet bills, which require manual calculations and inclusion in your tax return.
If you’re self-employed and working from home, simplified expenses are just one aspect of the potential tax relief you’re entitled to. Read our self-employed working from home tax guide to learn more.
Flat rate expenses: tips and best practices
- As an employee, flat rate expenses are just one type of expense you can claim. Other costs, such as business mileage incurred in your personal vehicle etc may all be claimable too.
- Don’t forget that you have four years to apply for flat rate tax relief, so make sure you are claiming for any period in which you’ve been eligible.
- Remember that some occupations and industries have different reliefs applied to different tax brackets. Higher-rate taxpayers can claim higher amounts of relief.
- If you’re a sole trader pressed for time, quickly check which costs you can claim for with this Crunch article
If you’re still confused by any of the flat rates covered in this guide, we can help. Crunch provides accountancy and tax reporting tools for small businesses to help streamline your requirements and, just as the flat rate concept intends, make your life easier. Click here to learn more.