Self Employed and Working from Home – Expenses Guide

We know that many of our clients have unique and complicated situations when it comes to working from home and it is not possible to give an example that neatly suits every situation, so this is just a general guide.

For many small business owners, a large proportion of your working day is conducted from home, it is therefore important to know which household expenses you can claim a proportion of as a business expense and how this is calculated.

What Expenses Can I Claim?

As a rule, you can only claim expenses if you ‘have’ to work from home and so if you are working from home voluntarily you cannot claim.  However, if your company’s trading or registered office address is your home address then this counts towards ‘having’ to work from home.

If you are self-employed you can claim a proportion of your fixed and variable household expenses.  Here are some examples of such expenses:

  • Light and Heat (e.g. Gas / Electric/ Oil)
  • Water
  • Council Tax
  • Buildings & Contents Insurance
  • Rent (if you don`t own your home)
  • Mortgage Interest (ensure you only include the interest element not capital repayment)
  • Property Repairs (if the repair relates solely to a room that is used for your business then you can include the full cost, if it is a general household repair it needs to be apportioned as explained below.  If the repair relates to a room only used personally then the cost should not be included)
  • Cleaning costs
  • Telephone
  • Broadband

Note: For bills like your home phone and broadband you can claim a fair percentage for business use – e.g. if you spend approx 50% of your time on the phone/broadband for personal use, and 50% for business use then you can claim 50% of the bill as an expense.  You can claim for your line rental if you need this for your broadband even if you do not use the landline phone.

Apportioning Home Working Expenses

So how do you work out a fair proportion of the actual bills mentioned above? There are two methods; Flat Rate and Analysing Costs. The quickest and simplest approach is using the flat rate method, but this usually produces a lower level of tax relief than if you use the analysing the costs method.

Flat rate method

There are two flat rate methods, depending on whether you are a sole trader or a company director.

Sole trader method

This method is based on the average number of hours a month you spend running your business at home, which gives a fixed amount to use in your accounts for business use of home.

The rates are as follows:

  • 25-50 hours: £10 per month
  • 51-100 hours: £18 per month
  • 101 hours or more: £26 per month

If the number of hours you work varies each month, you can dip in and out of the higher and lower allocations to come to your total annual amount.

E.g. if you worked for 51-100 hours per month for 10 months of the year and only 25-50 hours per month for 2 quieter months then you could claim 10 months @ £18 per month and 2 months @ £10 per month, so £200 per year.

Company director

You can claim a flat rate of £4 per week for business use of your home, if you don’t want to keep track of actual home running costs.

Analysing the Costs Method

This calculation is based on your actual running costs. HMRC say that you need to apportion the running costs of your home on a “fair and reasonable” basis between the private element (relating to you actually living there) – and the business element.

Therefore, it is worked out using two factors;

  • the number of rooms in your house that are used for business purposes
  • and the amount of the time you use those rooms for business purposes compared to their total use

You then divide your total household running costs by the number of rooms you use for business and the proportion of business use of each room.

For example, if there are 10 rooms in your home and you only use one for your business and 90% of the total use of that room is for business – you would add up all the home running costs that you can claim, and multiply that by 1/10 and then by 90%, to get the total accounts figure for the business use of your home.

Just remember that it’s not a good idea to use any part of your home 100% for business activities, because capital gains tax will then be due on the part you use solely for business if, and when, you sell your home. Try to ensure the rooms all have a dual purpose by at least storing some personal possessions in a room otherwise used for business purposes.

Remember that if Pillow May prepare your accounts, we will recommend the best method to use for calculating your home working costs & help you calculate a suitable business proportion.  

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