What home-office expenses are deductible for your business?
With greater use of home-working now the norm for many UK businesses, it’s important to think about the deductible expenses that you may be able to claim when working from a home office.
Working from home results in us using more power, more broadband and more heating than when working from an office space, or from a coworking space outside the home. But which elements of your home expenses can you claim back? And how does the process work?
Which of the four home-working categories applies for you?
To be able to claim back your home-working expenses, your home office must be your main place of business. If you generally work away from home and just use the dining-room table to complete the occasional bit of paperwork, that won’t count.
There are four groupings into which your business must fall when it comes to claiming back home-office expenses: Limited Company or Unincorporated, with each claiming at either a flat rate or actual costs.
1. Limited Company
Flat Rate: a flat rate of £6 per week (£4 up to 5th April 2020) can be claimed against your home expenses.
Actual Costs: Alternatively, you can base your claim on a share of actual costs, which may include:
- Metered light and heat.
- Calls made on your home telephone.
- Insurance, if there is business equipment insured under that policy.
- Repairs if incurred on business equipment.
- ISP/broadband costs, subject to the contract.
- A proportion of the cleaning costs of your workspace, if the work is of the type that requires extra cleaning.
As directors are treated as employees you cannot claim:
- Mortgage interest or rent.
- Water rates.
- Expenses that do not have receipts i.e. cash wages of a cleaner.
The share of costs may be based on the number of rooms in the house e.g. 1/6 or another logical apportionment.
2. Sole Trader / Unincorporated
Flat Rate: this is intended for unincorporated businesses (sole traders etc.) who work from home, and is broken down into three scaled categories
- If you work at home 25-50 hours/month, you can claim £10/month,
- If you work 51-100 hours/month, you can claim £18/month,
- f you work 101+ hours/month, you can claim £26/month.
Actual Costs: You can claim back an amount against tax, calculated in exactly the same way as for a limited company but can also include council tax and mortgage interest.
Other points to be aware of:
Here are some other factors to take into consideration.
- Capital gains tax on a property sale: The sale of a residential property isn’t normally subject to capital gains tax (CGT). But if you use one room exclusively for business, then the proceeds of the sale of that room are potentially liable for CGT. Simplistically, for example, if you have a home office that takes up 10% of the total area of the house, and the house is sold producing a capital gain of £100,000, 10% of that gain would be subject to CGT. However, if a spare bedroom with a desk is temporarily used as a workspace while the employer's office is not accessible, this would not give rise to any capital gains tax issues.
- Use of the room: If possible, try not to use any room exclusively for business. Put an exercise bike in your office room for workouts, so it’s only available for the business 90% of the time! The ‘1/6th’ in the earlier section then gets reduced by 10%.
- Repairs: repairs for your ‘home office’ room can be claimed back in full, and repairs for other rooms can’t be reclaimed at all. General repairs to the house (e.g. re-tiling the roof) can be claimed proportionally.
- Phone and broadband expenses: Whatever you guarantee for your phone and broadband isn’t allocated based on how many rooms there are in your house, rather on your real use of the line. Your mobile phone bill is fully allowable (so personal use is ignored) if you’re claiming as a limited company but the mobile contract should be in your company name.
Talk to me about claiming your home expenses
With more and more of us now working from home, it’s important to know what expenses you can claim for, and how much you can claim back against these home-working overheads.
Talk to me and I’ll help you calculate what can (and can’t) be claimed, and what the impact will be on your annual tax bill.
Get in touch to talk through your home expenses.