Claiming use of home office

Lots of people are conducting business from their homes, for many reasons; flexible working, new business start-ups, businesses that do not require office space.

One question I get asked a lot is, “How much can I expense to my business for using my home as an office?”

A sole trader’s home office expenses are different to that of a company director’s, so, let’s take a look at some of the commonly claimed home office expenses.

The Basic Rules are:
You can only claim expenses you have genuinely incurred in the course of running your business! When working out how much of your household expenditure can be fairly reclaimed for business use, HMRC states: “It will normally be appropriate to apportion these expenses by area and time.”

How do you work out the proportion of household expenses to claim for?
If you’re self-employed, you can claim back some of your home working costs if you use a “reasonable” method to calculate the total amount.

The steps, roughly, are as follows, with an example:
1. Count the number of rooms in your house (example – 5)
2. How many of these rooms do you use for work? (e.g. – 2, the living room & the office).
3. How long do you use these rooms each day (percentage)? (living room 40%, office 60%)
4. Divide each bill by the number of rooms in your house (e.g. £350 annual electricity bill, divided by 5 rooms = £70 per room)
5. Multiply the bill’s room cost by the percentage of the day that room is used for business purposes (living room = 40% x £70, office = 60% x £70)
6. So, for the electricity bill, your total claim using this method is £28 (living room) + £42 (office) = £70
7. Repeat this step for each household bill you want to claim against.

HMRC has provided several examples of how to apportion household expenses to your business in BIM47825.

Sole Traders Directors
Can claim a proportion of almost all household expenses against your tax.  Can only claim a limited number of household expenses against your company’s tax bill.
  •  Mortgage interest (you can’t claim for the capital repayment element of a mortgage)
  • Rent
  • Council Tax
  • Water
  • Electricity
  • Heating
  • Home insurance (if at also covers your business)
  • Repairs
  • Cleaning costs

For a full list, read HMRC BIM47820 , which deals with specific deductions for the use of home by the self employed.

An alternative to the above method is to use the Simplified Expenses method – using a flat rate instead of working out actual business costs.

You can only use simplified expenses if you work for 25 hours or more a month from home.

Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more  £26

Currently, HMRC allows a flat £4 per week fixed expense (excluding business telephone calls), which can be claimed back from the company without the need for any receipts. You can read HMRC’s views on reclaiming this fixed rate in EIM01476.

Obviously this is a nominal amount and will not cover even a fraction of the costs incurred by limited company owners who use their home as a workplace in a significant way.

As an alternative to the £4/week fixed rate expense, you can also get tax relief for a limited number of other expenses, as long as they are not for services already being provided for personal use, or for dual purpose (such as a broadband line shared by the household as well as the business). You are able to claim for the extra costs of lighting and heating the work place, for example, as well as business phone calls and a dedicated business broadband service.

  • Heating
  • Electricity
  • Business telephone

What about claiming the cost of rent, and mortgage interest?
Directors (and employees) can’t claim back any proportion of rent, mortgage interest, or council tax from their companies, as these costs would have been paid personally anyway. This is stated in HMRC EIM32815.

Limited company directors can charge the company ‘rent’ as a proportion of the rent or mortgage interest paid by the household, however, this rental income must be disclosed on your annual self-assessment form, and a formal contract would need to exist to cover this rental agreement.

If you use a separate building on your residential premises, you can claim back all the costs for maintaining that building, or charge a proportion of the cost if the building has shared residential use. If the separate building is owned by the business, then more complex tax rules apply, as it will become a business asset rather than a personal one.

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