Fixed rate deductions for expenses of unincorporated businesses

By Tolley
  • (Updated for Budget 2020)
Personal_tax_img4

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Fixed rate deductions for expenses of unincorporated businesses
  • Overview of the flat rate deduction for expenses
  • Vehicle costs
  • Use of home for business purposes
  • Business premises used as home
  • Should the business owner opt for flat rate deductions?

Two income tax simplification measures were introduced from 2013/14 onwards to reduce the administrative and regulatory burden on small unincorporated businesses and therefore encourage individuals to start their own businesses. The provisions removed the need to capture and retain certain information that was required prior to that tax year and also save costs in complying with certain parts of the tax legislation.

These two measures are:
•a simplified basis for calculating taxable profits (which applies to small businesses), and
•fixed rate deductions for certain expenses rather than calculate the actual amounts (eg business use of car, business use of home, subsistence)

FA 2013, Schs 4, 5

The criteria for using these measures are different, but both are available to unincorporated businesses only.

This guidance note is an overview of the fixed rate deduction for expenses. For information on the simplified cash basis, see the Simplified cash basis for small unincorporated businesses guidance note.

For HMRC guidance on fixed rate deductions for expenses, see Chapter 3 of the technical note  dated 28 March 2013 which was published to coincide with the Finance Bill (now archived). This guidance is still valid as no changes were introduced during the parliamentary process, although note that since then the fixed rate deductions for business use of the home and business premises used as a home have been extended to partnerships (so long as all the partners in the firm are individuals).

Overview of the flat rate deduction for expenses

Fixed rate deductions are available to all unincorporated businesses, not just those that have a turnover eligible for the simplified cash basis discussed in the Simplified cash basis for small unincorporated businesses guidance note. However, in a partnership, no partner may use the fixed rate deduction if any partner during the period was a company. 

ITTOIA 2005, s 94C; BIM75001

Fixed rate deductions are available for the following category of expenditure:
•expenditure on vehicles
•use of home for business purposes, and
•private use of business premises
The fixed rate deductions are available to those carrying on

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