To simplify or not - home working and mileage

HMRC offers various ways to simplify how to work out your expenses.

They include mileage and home working calculations (see the linked articles).

In some cases you may want to claim the full amount. Here are some reasons.

Imagine you're a courier and you spend £1,500 on an e-bike. For simplicity, let's say the bike costs 1p per mile in electricity (it may actually work out less than that).

You make £10,000 in your first year, and ride 2,000 miles. You have no other income. And let's say you have £1,000 of other expenses you can claim.

One option is to claim the whole cost of the bike in the first year - £1,500, plus £20 in electricity.* Your taxable profit is £10,000 - £1,520 (bike) - £1,000 (other expenses) = £7,480.

Alternatively, you could claim the simplified costs of mileage. Let's assume this bike doesn't need a licence so works out at 20p per mile. That's 20p * 2,000 miles = £400. Your taxable profit is £10,000 - £400 (bike) - £1,000 (other expenses) = £8,600.

Normally, we'd want to reduce our profit as the less profit you make, the less tax you pay. Except in this example, you're not paying any tax anyway because you're earning under the personal allowance (of about £12,500).

So in this example, reducing your profit makes no sense!! You're better off claiming mileage than the cost of the bike. And this also reflects that you need to look at things as a whole over the life of the bike. Once you start claiming in one way, you need to keep with it ... so if you claim the full £1,500 this year you can only claim maintenance (and the tiny electricity cost) next year. If you claim mileage this year, you can claim mileage again next year.

Also be aware of the risk of being an "optimisation obsessive". It may be a small difference one way or another ... but if you can avoid doing everything twice then you'll be better off for it!

* There are more complicated other ways to do it as well involving capital allowances, but they can need an accountant to help you get it right.

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