What can you claim for if you are working from home?
When running a business, of any size, every pound adds up – whether that be ensuring your taxes are correct or increasing your profit margins. Having an understanding of what you can claim as a sole trader or limited company as businesses expenses can support with both. HMRC have complex rules on what and how to claim business expenses, however we’ve aimed to break these down for you, to at least provide a start point as to what you could claim.
One of the many reasons people are choosing to start their own business is for the flexibility of being your own boss. This flexibility often comes in the form of setting your own working hours and the freedom to work from home. If working from home is an option for you, or something that you regularly find yourself doing, this can have an effect on your household bills. Depending on the work that you complete you might be able to claim expenses for working from home.
If you use a room in your home for business purposes, such as a home office or spare room, you may be able to claim certain costs for your business. The important thing to consider is that you must be able to prove that you regularly spend time completing your work in this space. For example; it would be difficult to claim if you were completing a few hours administration at home, with the majority of your work completed on-site or at client premises.
What and how much can I claim as a business expense?
You are able to claim your costs on utility bills, such as heating and electricity as well as the interest of your mortgage payments (not the capital) or your rent. You may also be able to claim some of the costs on your council tax and if your business is included in your home insurance then you can also include this within your claim.
Depending on how you choose to claim your business expenses for working from home you can claim a minimum of £312 per year to much more, which is all relative to the amount of time you spend regularly working from your home. For sole traders and limited companies there are two main options available in order to claim business expenses for working from home – HMRC’s Flat Rate (Simplified Expense) or calculating the actual costs to your home and your business.
HMRC’s Flat Rate (Simplified Expense)
HMRC have provided an easy way to calculate home expenses in the form of a flat rate system, that allows you to claim a weekly amount of £6 per week (totally £312 per year) for the additional costs of running your business from home. HMRC do not treat this as a Benefit in Kind and therefore you will not need to pay tax on this through your self-assessment.
In order to claim this, you must work from home for a minimum of 25 hours per month. This is ideal if you work from home, at your dining room table, with the financial split is as follows:
|Hours Working from Home (per month)||Flat Rate (per month)|
|25 – 50||£10|
|51 – 100||£18|
For businesses that dedicate a room at home solely for business use, such as a home office, then the flat rate may not be enough to cover your outgoings and therefore calculating your actual costs may be more beneficial.
In order to calculate this, you will need to identify how many rooms are in your home, excluding “normal living spaces” such as bathrooms and hallways, and then identify how much time you spend working in these rooms.
It is more likely than not that rooms in your home have a duel use, for example the spare room could be used as a guest bedroom and a home office, and therefore the full costs of the room cannot be claimed as a business expense. However a percentage of the room’s cost can be claimed for, for example: if you use one room for business between 9am – 5pm and the rest of the time your family uses the room, your business use would be able to claim up to 70-80% of the outgoing costs.
Once you have calculated the percentage amount of time you use each room for business you can calculate the total expense you are able to claim.
You will need your total expense (for example electricity bill for the year) then divide this by the total number of rooms in your home, giving you a cost per room. The cost per room is then multiplied by the percentage business use for each room to create your total claim.
Example: £900 electricity bill, 8 rooms in house with 1 room used for business 80% of the time.
Calculation: 900 divided by 8 = 112.50
Cost of Room: £112.50 112.50 x 80% = 90
Total Claim: £90
It is not just your household bills that you are able to claim as a business expense – essential purchases, such as printers or office furniture, can also claim tax-relief as long as it is necessary for your professional and business duties.
More information on other business expenses you can claim, including home office furniture and broadband can be found in our recent blog: Business Expenses for a Limited Company Explained.
How do I claim business expenses as a sole trader?
As a sole trader there are two options to claim expenses for working from home, either the simplified method provided by HMRC or by working out your actual costs based on the proportions of personal vs business use for your home.
- Actual Costs
Exactly as it says – you can work out the actual costs for working from home, for example the proportion of your utility bill expenses incurred by your business. This can be submitted through your usual tax return.
- Simplified Expenses
Provided by HMRC this allows you to claim a flat rate for your expenses based on the number of hours you spend working from home each month. In order to qualify for this, you need to work from home for a minimum of 25 hours per month. This method saves you the hassle of working out the actual spend and therefore reduce the amount of paperwork you need to do in order to claim.
HMRC can support you to decide which option is best for you through their simplified expenses checker on the gov.uk website.
How do I claim business expenses as a limited company?
There are two ways in which you can claim business expenses for working from home as a limited company – through HMRC’s flat rate, simplified expenses, or through a rental agreement between you and your limited company.
- Rental Agreement
You may be able to claim a higher amount than £312 through a rental agreement, between yourself, as the homeowner, and your limited company. You must ensure this is a formal agreement, as this can cover the proportional costs of the rented space including mortgage payments and utilities based on the amount of the property used for business purposes.
A simple way to calculate how much you can claim would be to identify your monthly outgoings for claimable expenses and divide that by the percentage of the rooms you use for business (usually only one room). An example would be if you owned a house with eight rooms, an office being one room, you calculate the rental agreement based on one eighth of the eligible expenses.
There are lots of option, some more complex and time consuming than others, when claiming relief for working from home as a business expense. You need to find what is best for you and your business both administratively and financially.
For more information on the business expenses your company can claim or working from home or for support for your business please contact Byte Accounting.