If you run a small business, sole trader business, or partnership, HMRC offers two practical options that can make your tax admin simpler:
- Cash basis accounting
- Simplified expenses
Both are designed to reduce paperwork and help you claim expenses correctly, but they’re optional, and they’re not right for everyone.
If you want help choosing the best method (and making sure you claim everything you’re entitled to), call Accounting People Ltd on 0333 023 1300.
1) What is the Cash Basis Scheme?
Cash basis is a way of working out your taxable profit using money in vs money out.
- You record income when you actually receive it (cash, card, bank transfer, cheque)
- You record expenses when you actually pay them
This is different from traditional (accruals) accounting, where income and expenses are recorded on the date, you’re invoiced/billed, even if the money hasn’t changed hands yet.
From 6 April 2024, cash basis became the default method for eligible self-employed people, but you can still opt out and use traditional accounting if it suits you better.
Who can use cash basis?
You can use cash basis if you’re a:
- Sole trader, or
- Partnership without corporate partners
Who cannot use cash basis?
Cash basis is not available if your business is a:
- Limited company
- Limited liability partnership (LLP)
- Partnership with one or more corporate partners
There are also specific exclusions for certain trades (for example, some farming/creative averaging claims and other specialist categories).
Do turnover limits still apply?
Historically, the cash basis had entry and exit turnover thresholds, the familiar £150,000 and £300,000 limits. These applied up to 5 April 2024.
From the 2024/25 tax year onwards, the government removed all turnover restrictions, meaning eligible sole traders and partnerships can choose the cash basis regardless of their size, provided they meet the usual eligibility criteria (e.g., not operating through a company or LLP and not carrying out an excluded trade).
This reform significantly broadens access to the cash basis.
Why cash basis can be useful
Cash basis can be a strong fit for many small businesses because:
- It simplifies bookkeeping
You only record income when it’s actually received and expenses when they’re paid fewer adjustments, fewer accruals.
- It gives a clearer picture of real cash flow
Your accounts directly reflect the money entering and leaving the business.
- You don’t pay tax on income you haven’t yet received
If a customer hasn’t paid you by year‑end, that income isn’t taxable until the cash arrives.
When completing your Self-Assessment return, you simply select the accounting method you’re using (cash basis or traditional accruals) in the relevant section.
2) What are Simplified Expenses?
Simplified expenses are HMRC‑approved flat rates that you can use for certain common business costs. Instead of calculating the precise business proportion of mixed‑use expenses, you apply the set rates provided by HMRC.
They’re available to:
- Sole traders
- Partnerships (of individuals)
Simplified expenses are particularly useful where costs have both business and personal use, such as:
- Using a vehicle for work and personal journeys
- Working from home
- Living at your business premises
Not eligible:
- Limited companies
- Partnerships that include a corporate partner
Who qualifies for simplified expenses?
You can typically use simplified expenses in these areas:
1) Vehicle / mileage expenses
Instead of claiming actual running costs (insurance, fuel, repairs, servicing), you can claim mileage at flat rates:
- Cars & goods vehicles (first 10,000 miles): 45p per mile
- Cars & goods vehicles (over 10,000 miles): 25p per mile
- Motorcycles: 24p per mile
You can’t use simplified mileage if you’ve already claimed capital allowances for that vehicle or included it as an expense in your profit calculation.
2) Working from home (home office)
You can claim a flat monthly amount based on hours worked from home. You must work 25+ hours per month from home to use the flat rate.
| Hours worked from home (per month) | Flat rate |
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101+ | £26 |
Note: the flat rate does not include phone or internet, those can be claimed separately based on actual business use.
3) Living at your business premises
If you live at your business premises for example, in a pub, B&B, or similar you can claim the business portion of your running costs. Instead of working out the exact split between business and private use, HMRC allows you to deduct a flat-rate amount based on how many people live on the premises.
The more people living there, the higher the personal‑use deduction keeping the calculation simple while still ensuring you claim the correct business expenses.
How to calculate simplified expenses (the practical way)
To use simplified expenses properly, you need records for things like:
- Business mileage (and total mileage)
- How many hours you work from home each month
- Details of living-at-business-premises arrangements (if relevant)
At the end of the tax year:
- Apply the relevant HMRC flat rates for each category.
- Include the calculated amounts within your total allowable expenses on your Self-Assessment return.
HMRC also provides a simplified expenses checker to compare flat rates vs actual cost claims.
Which is better: cash basis, simplified expenses, or “traditional” accounting?
Both schemes are entirely optional, and each works differently:
- Cash basis is now the default for eligible unincorporated businesses, but you can opt out and use traditional accruals instead.
- Simplified expenses are optional and apply only to specific cost categories (such as mileage, working from home, or living at your business premises).
The best choice depends on your figures, trading pattern, and overall position.
In some cases, using actual costs may deliver a larger deduction than HMRC’s flat rates. In others, the flat‑rate approach reduces admin while still giving a reasonable and fair claim.
Ultimately, there’s no single “best” option the right method depends on what works most efficiently and tax‑effectively for your business.
Need help choosing the best approach? (Accounting People Ltd)
If you’re not sure whether cash basis or simplified expenses is best for your business , or you want to make sure your Self Assessment is accurate and tax-efficient , we can help.
Call Accounting People Ltd on 0333 023 1300 to book a call.
