If you’re one of the many self-employed people in the UK who is working from home, there’s some good news for you! You’re entitled to claim tax relief on part of the running costs of your home. Here’s a quick guide on what you can claim.
What running costs can I claim?
Here are some of the costs you could claim:
- Mortgage – you can only claim a proportion of the interest, not the capital repayment.
- Rent – only if you are renting your home from a landlord.
- Council Tax – this depends on how much you use your home for business as you may then need to pay business rates.
- Light & Heat
- Telephone & Broadband – this is not apportioned on the basis of number of rooms but on what actual business usage is.
- Property Repairs – must be on the part of the house you use for business.
- Water – can only claim if use is significant.
How do I claim?
There are 2 ways you can calculate your allowable expenses: the simplified flat rate method or the analysing the costs method.
Simplified Flat Rate Method
Simplified expenses are a way of calculating your business expenses using flats rates, however, you can only use this method if you are a sole trader or partnership that does not have any partners that are companies.
With this method you simply calculate how many hours a month you spend running your business at home and then include the corresponding fixed amount in your accounts:
- 25-50 hours – £10 per month
- 51-100 hours – £18 per month
- 101+ hours – £26 per month
This method is a lot quicker than working out your actual costs, but the figure might not be as high meaning that you could save time but pay more tax. Also, it is important to note that the flat rate method only covers costs for light, heat and power – you will still need to work out how much you can claim for your other costs.
Analysing the Costs Method
The analysing the costs method, which is the method you’ll have to use if your business is not eligible to use the simplified method, allows you to claim part of the actual running costs of your home in your business accounts, however, how much you can claim depends on the type of business you have and what work you actually do at home.
For example, if you’re a painter & decorator you might only spend a couple of hours a week doing your invoicing at home and spend the rest of your working hours at your customers’ properties. Whereas if you’re a self-employed PR consultant or web designer, you may do most of your work at home and only occasionally visit clients. HMRC says that you need to apportion the running costs of your home on a “fair and reasonable” basis between the private element of that cost – the part that relates to you actually living there – and the business element. So how do you do this?
- Count all the rooms in your house (exclude bathrooms/hallways)
- Identify the rooms that you work in and work out the percentage of time spent in each room which is business related e.g. you spend 10 hours in your living room but only 5 hours is business related then 50% is your business use percentage.
- Divide the cost of your bills between the rooms in your house either by dividing the cost evenly between the number of rooms in the house (e.g. £500 bill/5 rooms = £100 per room) or by working out the percentage of floor space for room each and multiplying that by the total bill cost (e.g. office is 10% floor space x £500 bill = £50).
- Apply the percentage of work use to the relevant room costs e.g. £100 x 50% = £50 as business expense, or, £50 x 50% = £25 as business expense.
Claiming costs for working from home is not as simple as it initially sounds. If you would like any further information, please contact us at firstname.lastname@example.org