Do you enjoy paying taxes? How about paying out more than you have to?
If you work from home and aren’t claiming all of the expenses that you’re entitled to, then that’s precisely what you’re doing. Let us help you sort that out right now!
If you’re a sole trader or the boss of a limited company, and you work from home, you’re entitled to claim various expenses.
We’ve laid these out in detail below, so you can be sure you’re claiming everything you should be. Just remember, as with anything financial, seek professional advice for the ultimate peace of mind!
The Rise of Working from Home
The whole ‘use of home as office’ concept isn’t new. However, it is a practice that more and more of us are embracing.
From freelancers and sole traders to those heading up their own limited companies, home working has never been more fully appreciated.
Figures from the Office for National Statistics show that the number of people working from home jumped from 884,000 in Q4 2008 to 1,542,000 in Q4 2018.
That’s a rise of 74% in a single decade!
There’s a simple way to claim a flat rate for your home working expenses at the end of this article.
However, if you’re prepared to do a few sums, may be able to claim more, as you can choose to calculate your expenses instead. We’ve laid out details of the various costs and how to claim for them below.
What Expenses Can You Claim When Working From Home?
1. Mortgage Costs
If you’re based at home as a sole trader or the director of your own limited company, it’s time to start calculating your deductible expenses. Let’s start by tackling the thorny issue of mortgage payments.
Now, HMRC doesn’t provide set figures on what you can and can’t claim in terms of your mortgage. To further confuse matters, there are different rules for sole traders and for company directors. Let’s look at each of these in turn.
Sole traders can divide the running costs of their home between personal use and business use on a ‘fair and reasonable’ basis. If you’re a sole trader, work out how much of your home you use for work.
If you have a home office, that’s one room being used for work most of the time. Note: be sure to use the space for personal enjoyment occasionally too, to avoid incurring Capital Gains Tax when you sell your home.
Once you know how many rooms you use for work and what percentage of the time you use them for it, divide the cost of running your home by the number of rooms and then multiply it by the percentage of use that is work-related.
You can claim mortgage interest (not the capital part) as a fixed running cost, according to HMRC, so use the calculation above to work out how much you can claim.
If you use 1 out of 7 rooms for work 90% of the time, divide your mortgage interest by 7 and then multiply the resulting number by 90%.
For those running a limited company from home, things are rather different. You can’t claim your mortgage payments as expenses, but you can rent your home office to your company.
To rent your home office to your limited company, you need to set up a formal rental contract between the homeowner (you) and the company.
With your company officially renting out the office space, you can deduct the rental payments from your pre-tax profits.
The result? A lower corporation tax bill. Although potentially also a higher personal tax bill – as your rental income will be taxable.
Again, there are differences between sole traders and limited company directors when it comes to claiming rent as a deductible expense.
HMRC advises that you can claim a proportion of your rent if you are a sole trader. You can use the same calculation that we laid out above to work out how much you can claim. So:
If you use 1 out of 7 rooms for work 90% of the time, divide your rent by 7 and then multiply the resulting number by 90%. Voilá!
As with mortgage interest, limited company directors can’t claim rent as part of their working from home expenses.
Essentially this is because rent (like mortgage payments) is a fixed cost rather than a running expense.
It’s also not permissible to rent part of your home to your business unless you own the property. So company directors can’t claim their rent as an expense, even if they work from home fulltime.
3. Council Tax
It’s the same story with Council Tax. Sole traders can calculate a proportion of the cost and claim it as a business expense, using the same sum as above.
Company directors, however, cannot claim any part of their Council Tax as expenses.
That’s because HMRC sees Council Tax as a fixed cost. You have to pay it regardless of whether or not you work from home.
4. Gas and Electricity
Both sole traders and company directors can claim a proportion of the energy that they use when working from home as expenses.
For sole traders, you’re back to calculating the relevant proportion of the cost of electricity and gas. It’s the same sum you used for mortgage, rent and Council Tax payments (are you sensing a pattern here yet?).
Company directors, meanwhile, can calculate the proportion of their lighting and heating costs that are used for business purposes in just the same way.
This is one area where the working from home expenses are the same for both parties.
5. Phone and Broadband Costs
Very few businesses operate these days without incurring phone and broadband costs. If you’re working from home and using the internet or phone for work, then you can claim those costs as expenses.
This is the case even if you use the simplified expenses scheme for sole traders or the flat rate for company directors to cover your working from home costs (see below for details of these schemes).
In the case of telephone calls, you can claim for the amount used for business purposes. If you have a phone that’s purely for business use, you can claim for the full cost of it.
If you use your phone for both business and personal use, company directors can claim for the business-related calls, but not the line rental. Sole traders can claim for a percentage of the line rental, as well as for their business calls.
For broadband usage, sole traders can claim for the proportion of the cost that relates to business use.
Broadband is a little trickier for limited company directors.
You need to show that the broadband cost is solely for business purposes.
For example, you could have one broadband line for business use and a separate one for personal use. You can then claim the business one as an expense.
If your home doesn’t have broadband, and you need it in order to work, you can install it and claim it as a working from home expense.
What you can’t do is just start working from home and claiming an existing residential broadband connection as a business expense. HMRC isn’t keen on subsidising your Netflix subscription.
6. Property Repairs
Property repairs can be costly. However, if you work from home, you may be able to claim a proportion of them as expenses. Whether or not you can depends on the repair in question.
Sole traders can claim for repairs that relate to the room used for home working or for a repair to the house as a whole.
If the repair is for the home office, you simply calculate the cost of the repair by the percentage of time that you use the room for working.
For house-wide repairs, you go back to apportioning the cost based on the number of rooms used for working from home, as well as the time spent using them. It’s essentially the same sum that we used above:
If you use 1 out of 7 rooms for work 90% of the time, divide your repair bill by 7 and then multiply the resulting number by 90%.
Company directors who work from home can also claim back the cost of property repairs – again, provided they relate to the area of the home that is used for business purposes.
Strangely enough, HMRC does not care to fund personal home décor projects with no business-related aspect!
7. Office Equipment
Every business needs some kind of equipment in order to operate.
If you work from home, you can claim for the cost of the equipment that you need in order to run your business.
Sole traders can claim for office equipment ranging from small, inexpensive items, such as staplers, to more costly items, such as computers and printers.
Even larger items of equipment, such as desks and chairs, can be claimed as home working expenses. That’s provided that they are used mainly for work-related purposes, of course.
It’s the same for limited company directors. They can claim equipment that is necessary for the business to operate as an expense. They can also claim for larger items, such as office furniture, within reason.
How to Claim Working from Home Expenses the Easy Way
You don’t have to suffer financially as a result of working from home, even if sums aren’t your strong point!
If you don’t want to do a load of complicated multiplication, there’s a quick and simple way to tackle your working from home allowance.
Sole traders can used HMRC’s ‘simplified expenses’ flat rates to claim for part of their working from home costs.
At the end of the tax year, you can apply a flat rate based on the number of hours that you worked from home each month (from 25 hours or more):
- If you worked 25-50 hours per month from home, you can claim £10 per month.
- If you worked 51-100 hours per month from home, you can claim £18 per month.
- If you worked 101+ hours per month from home, you can claim £26 per month.
This doesn’t include telephone and broadband costs. You can claim these in addition to the flat rate allowance.
There’s also a simple flat rate scheme for directors of limited companies who work from home.
They can claim £4 per week (so £208 per year) without the need for any sums or even receipts. Again, you can claim telephone and broadband expenses on top of this amount.
3 Expenses You Can’t Claim if You Work from Home
While there are plenty of expenses that you can claim if you work from home, there’s also a whole host of items that aren’t tax deductible.
As mentioned above, one thing you can’t claim for is home repairs to a room that has nothing to do with your business.
You might feel that it’s time for a new kitchen, but when it comes to paying for it, that’s all on you.
You also can’t claim for food and drink that falls within your normal working routine.
You might fancy gourmet treats for lunch every day, but don’t expect HMRC to foot the bill for them. (Although if you’re travelling on business or have to buy food outside of your normal working routine, you may be able to claim for that.)
Clothing, too, is out – unless it’s a uniform that is solely for business use.
PJs definitely don’t count!. HMRC considers that clothing that is part of an everyday wardrobe – and that therefore could also be worn for personal use – is not a tax-deductible expense.
The Value of Professional Advice
Before you file that tax return, be sure to seek professional help! Accountancy services are there to help you get your finances in order.
Whether you’re a sole trader or a limited company director, run your business expenses past your accountant before you submit anything to HMRC.
Rules around taxation and expenses are complex. Always consult with a professional to ensure you’re claiming everything correctly.