Self-employed: What expenses can I claim working from home

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Self-employed: What expenses can I claim working from home

One of the greatest things about being self-employed is the chance to work from home. It is this type of flexibility that motivates people to start their own small businesses in the first place. It is also especially good for those who do not see a nine-to-five office job as a suitable role, like those having special needs or stay-at-home parents.

You do not have to be self-employed or run your own business to work from home. Many remote employees worked at their homes at least some of the time – indeed, the ongoing pandemic has increased this dramatically. Yet for some, working from home means saving money.

Our essential guide below outlines which remote working-related business expenses you can claim and how this is calculated.

What Expenses Can You Claim?

As a general rule, you can only claim expenses if you ‘have’ to work from home. But, if you are voluntarily working from home, you cannot claim these expenses. However, if your registered office address or your company, trades from your home address, then this counts towards ‘having’ to work from home.

If you are self-employed, you can claim a proportion of your variable and fixed household expenses that are related to your business, including rent, business phone calls, utility bills such as lighting and electricity for your office space, and business-related internet bills. It’s not feasible to ask for personal costs for things that you use privately.

With Fusion Accountants, you do not have to be a professional to deal with your annual tax return. We can do that for you. In fact, we provide tax advice for the self-employed and deal with all your tax affairs. We are here to simplify matters so that you can spend less time worrying about your taxes and spend more time focusing on your sole trader business.

We understand how difficult it has been for you to run a small business as a self-employed business owner during the pandemic. That is why we are here to help.

The home running costs you can claim as part of your business

Rent and mortgage expenses

You can claim a proportion of your mortgage interest and costs for rent if you own your home.

If you are self-employed, you cannot charge your business rent since legally, you are the business. However, if you are renting your home from a landlord, then you can ask for a proportion of the rent for your business. On the other hand, if you are buying your home through a mortgage when you are self-employed, you can request a percentage of the interest-only, not the capital repayment.

You may have to also pay Capital Gains Tax if you use the space for business purposes only and sell your property in the future.

Council tax

You can also claim council tax as an allowable cost. However, this depends on how much you use your home for your business. You may have to pay business rates instead of council tax.

The rules are different when you are a sole trader. You can opt to determine your claim through simplified costs for the self-employed or you can work out your actual expenses by calculating the percentage of business use for your home (e.g. utility bills). Using sole trader accountants can help you plan and decide which method is best for you.

Utility expenses

One of the main downsides of working from home is just how costly your utility bills can be, especially during the winter season. You can commonly expect to be charged more for increased usage of lighting, water, gas, and electricity, but you can claim a percentage of these back.

Mobile and broadband bills

Bear in mind that the request for your mobile and broadband bills is not based on the number of rooms in your home, but on what your actual usage of the line is. You can claim the percentage of the line rental and the full cost of your business use of the line, based on how much you consume for personal use and how much you use it for business purposes.

Property repairs

You could include this expense in your accounts in full if a property repair relates solely to the part that’s used for business or subject to the business use of that room. However, if it is a general household repair, then it needs to be apportioned using the methods below. Again, you cannot claim your allowable expense if the repair relates to a room solely for personal use.

How to calculate your working-from-home tax expenses?

There are two methods you can use: The Flat Rate or Analysing Costs. The simplest and quickest approach is applying the flat rate method, but this commonly produces a lower level of tax relief compared to using the analysing costs method.

The flat rate method

This method simply asks you to look at how many hours a month you spend running your business or work at home and include a fixed amount for business use of the home in your accounts.

The amount varies with the average number of hours per month you run your business or work at home, as follows:

  • 25 to 50 hours: £10 per month
  • 51 to 100 hours: £18 per month
  • 101 hours or more: £26 per month

While this method is certainly quicker than working out your actual expenses, the figure might not be as high. This means you could save time, but you will pay more tax. It is also important to note that the flat rate method only covers expenses for light, heat, and power. You will still need to calculate how much you can claim for your other costs, such as council tax, rent, and mobile and broadband bills.

Analysing the cost method

Analysing the cost method is based on your actual running expenses. You need to apportion your home’s running costs on a ‘fair and reasonable’ basis between the business element and the private element (if you are living there).

Therefore, this calculation is worked out using these two factors:

  • The number of rooms in your home that are used for business purposes
  • The amount of time you spend in those rooms to run your business compared to their total use.

Then, divide your total household running expenses by the proportion of business use of each room and the number of rooms you use for business.

To illustrate this, if there are 5 rooms in your house and you only utilise one to run your business and 90% of the total operation of that room is for business you would add all the home running expenses that you can claim, and multiply that by 1/5 and then by 90%, to get the total accounts’ figure for the use of your home for business purposes.

Examples:

If the ceiling in your office was repaired for £250, you would not need to divide that by 5 because the repair was only for that room – you would just multiply by 90% and then include that amount (90% x £250 = £225) in your accounts.

If the repair is to your whole roof, you can include that in the same proportion as you would the rent or council tax – so in the example above of your 5-roomed house, the repair cost x 1/5th x 90%.

The bottom line

Claiming expenses of working at home as a self-employed employee or a small business owner is not as easy as it initially sounds. If you are in any doubt, you should seek further advice from an accountant to make sure that the items you are planning to claim are truly allowable expenses.