“Simplified expenses” and “capital allowances” both get filed under the same mental folder marked “boring tax admin stuff”, so it is easy to assume they are roughly the same thing, or that using one means you do not need to think about the other. They are not the same thing. They cover different kinds of spending, and getting the choice wrong on something like a van or a car can change your tax bill by hundreds of pounds in a single year.
What simplified expenses actually covers
Simplified expenses is HMRC’s flat-rate scheme for sole traders and partnerships. Instead of tracking actual costs and receipts, you claim a fixed rate for three specific things:
- Vehicles. For the 2026-27 tax year, that is 55p a mile for the first 10,000 business miles in a car or van, 25p a mile after that, and 24p a mile for a motorcycle. This flat rate is meant to cover everything about running that vehicle for business - fuel, insurance, servicing, repairs, and wear and tear - all in one number.
- Working from home. A flat monthly amount based on hours worked from home on your business: £10 a month for 25 to 50 hours, £18 a month for 51 to 100 hours, and £26 a month for 101 hours or more.
- Living at your business premises. A flat rate for the rare case where you live above or alongside your business (a guesthouse or a pub, for example), to account for the personal use mixed in with the business costs.
That is the whole list. Simplified expenses does not cover equipment, tools, computers, stock, or anything else you buy for the business - only those three things.
What capital allowances actually cover
Capital allowances are how you get tax relief on things you buy that last - equipment, tools, machinery, computers, and vehicles - rather than things you use up straight away, like stock or stationery. The main mechanism is the Annual Investment Allowance (AIA): you can deduct up to £1 million a year of qualifying spending from your profit in the same year you buy it, effectively getting the tax relief immediately rather than spread out.
Vans and other goods vehicles qualify for AIA in full. Cars do not - cars get a separate, slower kind of relief called Writing Down Allowances (WDA), where you deduct a percentage of the car’s value each year rather than the whole thing at once:
- Zero-emission (electric) cars: 100% of the cost in year one - as fast as AIA.
- Cars up to 50g/km CO2: 14% of the remaining value each year.
- Cars over 50g/km CO2: 6% of the remaining value each year.
That last point matters a lot for the examples below: a petrol or diesel car depreciates for tax purposes far more slowly than a van does, because it is stuck in the slower 14% or 6% pool rather than getting the AIA’s immediate 100%.
The one place they collide: vehicles
Vehicles are the only spending that simplified expenses and capital allowances both touch, and HMRC’s rule is strict: for any one vehicle, you pick a method and you are stuck with it for as long as you use that vehicle in the business. You cannot claim the flat mileage rate one year and switch to capital allowances (or claim actual running costs) the next year for the same vehicle. The choice is made the first time you use that vehicle for the business, and it applies for its entire life in your business after that.
That single decision, made once per vehicle, is where the real money sits.
Example 1: buying a van outright
Say you buy a van for £18,000 and drive 12,000 business miles in it over the year. Actual running costs (fuel, insurance, servicing) come to £3,600 for the year. You pay tax at the basic rate, so every £1 you deduct from your profit saves you roughly 26p in combined Income Tax and Class 4 National Insurance (20% Income Tax plus 6% Class 4 NIC, on profits between £12,570 and £50,270).
Simplified mileage (one flat number, covers everything): 10,000 miles × 55p + 2,000 miles × 25p = £6,000 claimed. Tax and NI saved: £6,000 × 26% = £1,560.
Actual costs + capital allowances (running costs claimed separately, plus AIA on the van itself): £3,600 running costs + £18,000 AIA = £21,600 claimed. Tax and NI saved: £21,600 × 26% = £5,616.
Difference: £4,056 more tax and NI saved in year one by going the capital allowances route, purely because the AIA lets you deduct the entire £18,000 purchase price straight away. That AIA boost is a one-off in the year you buy the van - simplified mileage claims the same amount every year the vehicle is on the road, so if you plan to keep the van a long time and drive relatively few miles, the gap narrows in later years. But in the year you actually spend the money, the difference is substantial.
Example 2: buying a car (why mileage usually wins here)
Now say you buy a used petrol car for £10,000, with CO2 emissions over 50g/km, and use it 40% for business. You drive 6,000 business miles in it that year.
Capital allowances on the car: only the business-use portion of the cost goes into the pool, and cars over 50g/km sit in the slow 6% special rate pool. £10,000 × 40% = £4,000 in the pool. Year one relief: £4,000 × 6% = £240. Tax and NI saved: £240 × 26% = £62.40.
Simplified mileage instead: 6,000 miles × 55p = £3,300 claimed. Tax and NI saved: £3,300 × 26% = £858.
Simplified mileage saves you roughly £796 more in year one here, and every year after, for as long as you drive that same car for business - because a higher-emission car stuck in the 6% pool releases its tax relief extremely slowly, while the mileage rate pays out in full every year you drive. This is the main reason mileage is the default sensible choice for most petrol and diesel cars with meaningful personal use. Electric cars are the exception: their 100% first-year allowance can rival or beat mileage if the car is expensive and used mostly for business.
Example 3: a laptop (simplified expenses does not cover this at all)
Say you buy a laptop for £1,200, used entirely for the business. It is tempting to assume “I use simplified expenses, so my laptop is covered.” It is not - simplified expenses only covers vehicles, working from home, and living at your business premises. Equipment is never part of the scheme.
If you itemise your actual expenses, the laptop qualifies for the Annual Investment Allowance: £1,200 × 26% = £312 tax and NI saved, in full, this year.
If instead you use the £1,000 trading allowance - a separate flat-rate relief that replaces all your expenses, not just capital ones - you cannot also claim the laptop as a capital allowance on top. The trading allowance is meant to stand in for everything, so it is only worth choosing over itemising actual expenses (including capital allowances) if your real costs come to less than £1,000 a year.
The rule of thumb
- Vehicles: work out roughly how many business miles you will drive and how expensive the vehicle was. A cheaper vehicle, high mileage, or a higher-emission car usually favours the flat mileage rate. An expensive van or an electric vehicle bought outright, especially with high business use, usually favours capital allowances. Whichever you pick, it is locked in for that vehicle.
- Home working: the flat rate is there for simplicity, not necessarily for the bigger number - if your home running costs are high, working out the actual business-use percentage can be worth more, provided you keep the records to back it up.
- Everything else you buy to run the business - equipment, tools, computers, stock - goes through capital allowances (or the trading allowance if you are not itemising expenses at all). Simplified expenses never applies to it.
None of this changes what you actually owe HMRC by itself - it changes how quickly and how fully you get tax relief for money you have genuinely spent running your business. Getting the vehicle choice right, in particular, is worth doing the sums on before you file, because it is a decision you cannot easily undo.
This is general guidance based on HMRC rules for the 2026-27 tax year. Your own numbers, vehicle emissions figures, and business-use percentages will affect what is right for you, so if a vehicle or equipment purchase is a large one, it is worth checking the specifics with an accountant before you decide.
Whichever way you work it out, the figure that matters is the one you put in your spreadsheet before you upload it. See how aligned.tax turns that spreadsheet into a submission.