One of the biggest benefits of working for yourself is having the freedom to work from home. No more overcrowded commutes. You’ve got the freedom to fit your personal obligations and interests around your work. It’s a far cry from the nine-to-five schedule we’ve all become accustomed to.
Depending on the nature of your business, working from home also allows you to claim certain expenses. As ever, the HMRC rules on what you can claim as an expense can get a little complex. We have created this straightforward guide to help you claim what you are entitled to.
How do I claim home office expenses?
The key to claiming home office expenses is proving that you regularly spend time doing your job in this office space. If you just pop home to answer some emails and do a bit of light filing, but actually perform most of your duties on-site or at a client’s office, you won’t be able to make a claim.
The same essentially applies to the equipment you buy, too – you can make a claim on things like chairs and computers, so long as you can prove they’re wholly and exclusively to use in your job. HMRC’s rules on what you can and can’t claim are a little different for sole traders and limited companies. (See here for the pros and cons of these two business structures).
Claiming as a sole trader
Sole traders have two options: you can claim simplified expenses for the self-employed, or you can work out the cost of your expenses by calculating the proportion of personal and business use of your home. That means you’ll need to work out how much of, say, your electricity bill your business has contributed to.
The first option is the simplest – HMRC even call this option “simplified expenses”. Essentially, you can claim a flat rate of expenses based on the number of hours you work from home each month:
- £10 if you work between 25 and 50 hours,
- £18 for 51 to 100 hours
- £26 for 101 hours or more.
The simplified expenses method just covers heat, light and power costs. You could include those costs in your ‘actual cost’ claim if it’s certain to be more advantageous to your business. The other costs you can claim as ‘actual costs’ include a portion of house running costs like rent, mortgage interest (mortgage payments are not allowed, just the interest portion) and council tax. You can also claim the amount you actually use of broadband and phone costs.
To claim actual costs you’ll need to apportion the house running costs in a ‘fair and reasonable’ manner between your business and personal activities. One way to do that is based on floor space. If you have 5 rooms for example and use one of them 90% of the time for your business, then you add up all your relevant bills and multiply by 1/5 and then 90%.
If you claim 100% of a particular room for business use, you could be liable for capital gains tax on that portion of the house, if you sell. Try to keep each room dual purpose to avoid this.
Claiming as a limited company
There are two ways to work out your home office expenses – using HMRC’s flat-rate amount, or by creating a rental agreement between you and your limited company.
HMRC’s flat-rate currently sits at £4 a week – or £208 a year – and you don’t need to provide any receipts of your expenses.
Renting your home office to your limited company is a lot more complicated, though it does mean you’ll be able to claim more than the £208 a year flat rate. You’ll need to draw up a rental agreement, set your rent at a realistic value, and have a dedicated room just for business purposes. That means that you will probably be liable for capital gains tax if you sell the house. There’s a lot more to consider when going down this route. For more details see this article and make sure that you review options and set-up effective record-keeping systems with an accountant.
What other expenses can you claim for your home office?
Regardless of whether you’re working as a sole trader or through a limited company, you can make expenses claims for the proportion of time your business uses the household broadband and for all business related calls from your business or personal mobile phone. It always helps if you are able to set those services up through your business.
Is decorating an allowable expense?
You can claim a proportion of relevant property repairs and improvements. For example if you are decorating the room that you use primarily for the business, you could claim the proportion of use (eg. 90%). If you use a lot of water, for example in a hairdressing or pet grooming business, you could claim the amount of your bill that is in excess of standard household use.
You’ll also be able to claim for purchases of equipment that is wholly and exclusively for your professional duties, such as a work computer and specialist software. You may also claim reasonable relief towards the cost of equipping and furnishing an office (e.g. chairs or bookcases).
There are two key questions that will help you determine what you can and can’t claim as a business expense: “is this expense wholly and exclusively for business purposes, and can I prove it?”
If you’re ever in any doubt, the best course of action is to speak to an accountant and run it past them.