Simplified Expenses Under MTD

Using Simplified Expenses (Flat Rates) Under Making Tax Digital

Last updated: February 2026

Simplified expenses let sole traders and certain landlords claim flat rate deductions instead of calculating the actual cost of specific business expenses. They cover three areas: business vehicles, working from home, and living on your business premises. Under Making Tax Digital for Income Tax, simplified expenses remain fully available. You record them in your quarterly updates in the same way you would have reported them on your Self Assessment return — the only difference is that the figures now go through MTD-compatible software rather than a paper form or manual online entry.

This article explains each simplified expense category, sets out the current HMRC flat rates, shows how they interact with cash basis and three-line accounts under MTD, and walks through a worked example so you can see how quarterly reporting works in practice.

What are simplified expenses?

Simplified expenses are a set of flat rate deductions published by HMRC that replace the need to track and apportion actual costs for three specific expense types. Instead of keeping receipts for fuel, insurance, road tax, MOT and maintenance for your business vehicle, you multiply your business miles by a fixed rate. Instead of calculating the proportion of household bills attributable to your home office, you claim a monthly allowance based on hours worked.

The three categories of simplified expenses are:

• Business vehicles — cars, vans and motorcycles used for business journeys
• Working from home — using part of your home as an office or workspace
• Living on your business premises — when your home is also your place of business (e.g. a guesthouse or care home)

Simplified expenses are optional. You can choose to claim actual costs instead, but you cannot mix the two methods for the same expense category within the same tax year. If you use the flat rate for vehicle expenses, you must use it for all business vehicle costs that year.

Who can use simplified expenses?

Simplified expenses are available to sole traders and business partnerships. They are not available to limited companies. For MTD purposes, the individuals who will be submitting quarterly updates from 6 April 2026 onwards are sole traders and landlords with qualifying income above £50,000 (Phase 1), then £30,000 (Phase 2 from April 2027), and £20,000 or more (Phase 3 from April 2028).

Qualifying income is your combined gross self-employment income plus UK property income — total turnover, not profit after expenses. If you are within scope for MTD and you currently use simplified expenses for your Self Assessment return, you can continue to use them under MTD without any change to your entitlement.

There is one restriction on the vehicle flat rate: you must use it from the first year you claim expenses for that vehicle in your business. If you have already been claiming actual costs for a vehicle, you cannot switch to the flat rate for that same vehicle. You can, however, use the flat rate for a new vehicle you bring into the business.

Current HMRC flat rates

Business vehicle rates (mileage allowance)

The flat rate for business vehicle expenses depends on the type of vehicle and the number of miles driven:

These rates cover all running costs: fuel, insurance, road tax, servicing, repairs and depreciation. You cannot claim any of these costs separately if you use the flat rate. The only additional claim permitted is parking fees and congestion charges, which are not included in the mileage rate.

Working from home rates

If you work from home for at least 25 hours per month, you can claim a flat rate deduction for household costs (heating, electricity, broadband, etc.):

You must work at least 25 hours per month from home to claim anything. Below that threshold, you get no flat rate deduction for that month. You can still claim the actual proportion of household costs if that produces a higher figure, but you must choose one method for the entire tax year.

Living on your business premises

If you live on your business premises (for example, you run a bed and breakfast, boarding house, or care home from the property you live in), you can claim a flat rate for personal use of the premises rather than calculating the exact split between business and personal costs:

This deduction covers the personal proportion of costs such as council tax, mortgage interest or rent, utilities and insurance. The business proportion of these costs is already being claimed as a business expense; the flat rate replaces the need to calculate the personal element precisely.

How simplified expenses work under MTD quarterly reporting

Under MTD for Income Tax, you submit a summary of your business income and expenses to HMRC at the end of each quarter. The quarterly deadlines are:

When you use simplified expenses, you record the flat rate amounts as your expense figures in each quarterly update. Your MTD-compatible software should have a field or category for mileage and home office costs. You enter the miles driven or hours worked, and the software calculates the deduction using the HMRC rates.

For vehicle expenses, you need to keep a mileage log recording each business journey: the date, destination, purpose and miles driven. Your software may include a mileage tracker, or you can maintain a separate log and enter totals at the end of each quarter. The key point is that the underlying record of business miles must exist — HMRC can ask for it.

For home office costs, you need to record the hours worked from home each month. At the end of each quarter (which covers three months), you total up the flat rate for each month based on the hours worked that month. If you worked 30 hours from home in April, 60 hours in May and 110 hours in June, your Q1 deduction would be £10 + £18 + £26 = £54.

Interaction with cash basis and three-line accounts

Cash basis is now the default accounting method for unincorporated businesses with turnover below £150,000. Under cash basis, you record income when received and expenses when paid. Simplified expenses fit naturally within cash basis because they are calculated on a flat rate rather than matching costs to invoices. There is no accruals adjustment needed — you simply record the flat rate deduction in the period the miles were driven or the hours were worked.

Three-line accounts (also known as simplified reporting) allow sole traders with turnover below the VAT registration threshold (£90,000 from 1 April 2024) to report just three figures: total income, total expenses and net profit. Under MTD, three-line accounts translate into simplified quarterly summaries. If you use simplified expenses alongside three-line accounts, your total expenses figure includes the flat rate deductions. You do not need to break out vehicle costs or home office costs separately in your quarterly update — though your records must support the totals if HMRC queries them.

The combination of cash basis, simplified expenses and three-line accounts represents the most streamlined reporting option available under MTD. If your business is straightforward — for example, a sole trader consultant working from home who drives to client meetings — this combination minimises both record-keeping and the complexity of quarterly submissions.

Worked example: sole trader using flat rate mileage and home office allowance

Sarah runs a self-employed bookkeeping practice from her home in Stockport. Her gross income for the 2026/27 tax year is £58,000, which puts her into MTD Phase 1 from 6 April 2026. She drives to client premises and works from a dedicated home office. She uses cash basis and claims simplified expenses for both her car and her home office.

Quarter 1: 6 April – 5 July 2026

During Q1, Sarah drives 3,200 business miles visiting clients. She works from home for 140 hours in April, 120 hours in May and 130 hours in June.

• Mileage deduction: 3,200 miles × 45p = £1,440 (still within the first 10,000 miles)
• Home office deduction: April 140 hours (£26) + May 120 hours (£26) + June 130 hours (£26) = £78
• Total simplified expenses for Q1: £1,518

Sarah also has other business expenses paid during Q1: software subscriptions (£90), professional indemnity insurance (£280) and stationery (£35). Her total Q1 expenses are £1,518 + £405 = £1,923. Her Q1 income received was £14,500. She enters these figures into her MTD software and submits the quarterly update by 7 August 2026.

Quarter 2: 6 July – 5 October 2026

In Q2, Sarah drives 4,100 business miles. She works from home for 90 hours in July (reduced due to annual leave), 135 hours in August and 145 hours in September.

• Mileage deduction: 4,100 miles × 45p = £1,845 (cumulative miles now 7,300, still under 10,000)
• Home office deduction: July 90 hours (£18) + August 135 hours (£26) + September 145 hours (£26) = £70
• Total simplified expenses for Q2: £1,915

Quarter 3: 6 October 2026 – 5 January 2027

In Q3, Sarah drives 3,800 business miles. Her cumulative total reaches 11,100 miles, crossing the 10,000-mile threshold partway through the quarter.

• First 2,700 miles (to reach 10,000 total): 2,700 × 45p = £1,215
• Remaining 1,100 miles (above 10,000): 1,100 × 25p = £275
• Total mileage deduction for Q3: £1,490
• Home office: October 150 hours (£26) + November 125 hours (£26) + December 80 hours (£18) = £70
• Total simplified expenses for Q3: £1,560

Quarter 4: 6 January – 5 April 2027

In Q4, Sarah drives 2,500 miles. All of these are above the 10,000-mile annual threshold, so the lower rate applies throughout.

• Mileage deduction: 2,500 × 25p = £625
• Home office: January 130 hours (£26) + February 110 hours (£26) + March 140 hours (£26) = £78
• Total simplified expenses for Q4: £703

Annual summary

Sarah’s total business mileage for the year was 13,600 miles. Her simplified vehicle expenses total £5,400 (10,000 × 45p + 3,600 × 25p). Her home office deduction totals £296 across the year. These figures appear in her quarterly updates and are carried through to her final declaration, which is due by 31 January 2028.

Practical tips for recording simplified expenses under MTD

• Track mileage in real time. Do not wait until the end of the quarter to reconstruct your journeys. Use a mileage app or a simple spreadsheet updated after each trip. Your software may include built-in mileage tracking.
• Log home office hours monthly. The flat rate bands are calculated per month, so you need monthly totals. A simple diary entry at the end of each week noting hours worked from home is sufficient.
• Watch the 10,000-mile crossover. The rate drops from 45p to 25p after 10,000 business miles in the tax year. If this happens mid-quarter, split the calculation as shown in the worked example above.
• Keep records for five years. HMRC can enquire into your returns for up to four years after the filing date (six years if they suspect carelessness). Your mileage log and home office hours records must be retained for this period.
• Compare flat rate vs actual costs. Before committing to simplified expenses for a tax year, estimate both methods. If your actual vehicle running costs exceed the flat rate (common with expensive vehicles or low mileage), claiming actual costs may produce a larger deduction.

When simplified expenses may not be the best choice

Simplified expenses are designed for simplicity, not necessarily the largest deduction. Consider claiming actual costs instead if:

• Your vehicle costs are high relative to your mileage (e.g. you drive an expensive car with high insurance and maintenance but cover fewer than 8,000 business miles)
• You have a dedicated home office with significant costs (a converted outbuilding with its own heating, for example) where the actual proportion of household bills exceeds the flat rate
• You are VAT-registered and can reclaim VAT on vehicle fuel — the simplified mileage rate already includes a VAT element, so you cannot reclaim VAT on fuel separately

Run the comparison before the start of the tax year. Once you begin claiming simplified expenses for a vehicle, you cannot switch to actual costs for that vehicle in a later year.

Frequently asked questions

Can I use simplified expenses for a vehicle I also use personally?

Yes. The flat rate applies only to business miles. You claim 45p (or 25p above 10,000 miles) for each mile driven for business purposes. Personal mileage is not included. You need a log that distinguishes business journeys from personal ones.

Do simplified expenses change my quarterly update format under MTD?

No. Your quarterly update still reports total income and total expenses for the period. Simplified expenses are simply one component of your total expenses figure. Your MTD software calculates the flat rate deductions from the mileage or hours you enter, and includes them in the overall expenses total.

Can I use simplified expenses for my rental property?

The home office flat rate and business vehicle flat rate are available to sole traders. Landlords can claim the vehicle mileage rate for business journeys related to managing their rental properties (e.g. driving to inspect a property). The home office flat rate applies if you work from home managing your property business for at least 25 hours per month. The living-on-premises flat rate does not apply to standard buy-to-let landlords.

What happens if I forget to log my mileage for a quarter?

You should reconstruct your mileage as accurately as possible using diary entries, appointments, client records or GPS data. HMRC expects contemporaneous records, but a reasonable reconstruction is better than no record at all. Going forward, set up a system to log mileage immediately after each journey to avoid this problem.

Are the flat rates likely to change under MTD?

HMRC reviews the rates periodically, but the vehicle mileage rates have not changed since 2011. The home office rates were introduced in 2013 and have not been updated since. Any changes would be announced by HMRC in advance of the tax year they take effect. MTD does not alter the rates themselves — it only changes how you report them.

Sources

• GOV.UK: Simplified expenses if you’re self-employed
• GOV.UK: Expenses if you’re self-employed
• GOV.UK: Making Tax Digital for Income Tax
• GOV.UK: Find software compatible with Making Tax Digital for Income Tax
• GOV.UK: Travel — mileage and fuel rates and allowances