Fixed rate deductions for expenses of unincorporated businesses

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced 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
  • Fixed rate deductions for vehicle costs
  • Use of home for business purposes
  • Telephone / internet costs
  • Business premises used as home
  • Adjustments previously agreed with HMRC
  • Should the business owner opt for flat rate deductions?

Fixed rate deductions for expenses of unincorporated businesses

Two income tax simplification measures are available which reduce the administrative and regulatory burden on small unincorporated businesses. The provisions remove the need to capture and retain certain information that would ordinarily be required for those operating a business, thereby saving time and expenses in complying with the tax legislation.

These two measures are:

  1. a simplified basis for calculating taxable profits (which applies to small unincorporated businesses), and

  2. fixed rate deductions for certain expenses rather than calculating 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 Eligibility for the simplified cash basis guidance note.

Despite the administrative benefits, claiming fixed rate deductions may not always produce the most tax efficient result. Careful analysis should be carried out for each trade in question, and some of the points to consider are set out below.

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 Eligibility for the simplified cash basis guidance note. However, in a partnership, no partner may use the fixed rate deduction if any partner during the period was a company.

Fixed rate deductions are available for the following categories of expenditure:

  1. expenditure on vehicles

  2. use of home for business purposes, and

  3. private use of business premises

The fixed rate deductions are available to those carrying on professions and vocations in the same way as they are available to those carrying on trades.

Fixed rate deductions for vehicle costs

For those businesses able to use the fixed mileage rates for the use of cars and motorcycles, the mileage rate from ITEPA 2003, s 230 is

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