Limited Company, Self Assessment, Tax

What can I claim for working from home?

Posted on by sharon baker
use of home
18
Aug

You’re working from home, and incurring expenses to do so, so what can you claim through your business?

You have 2 options:

1. HMRC approved rates

2. Claiming a percentage of your household bills.

So let’s look at each in turn.

1. HMRC approved rates

The easiest way to claim for working from home is to use HMRC’s approved rates.

The HMRC approved rate is £6 per week, and you can include this as a cost on your profit and loss account.

You don’t have to do any complicated calculations, and you don’t have to apply to HMRC to use the rates.

The cost reduces your taxable profits if you’re self employed, or if you own your own limited company, and therefore reduces the tax you pay.

You can also get your business to pay you back either monthly or annually for the £6 per week, tax free.

If we’re preparing your accounts for you, we’re looking to see whether you can claim the use of home fixed rate, and will automatically include it for you, and let you know that your business can pay you back.

2. Claiming a percentage of your household bills

So this is where it gets complicated!

You can only claim for the percentage of your home that you’re using for business, and only for the number of days you’re working from home.

How to work out your use of home claim:

Here’s what you have to do:

  1. Add together all your electricity, gas, water and cleaning costs
  2. Divide by the total number of rooms in your house
  3. Multiply by the number of rooms used 100% for business (e.g. the office)
  4. Divide by 7 days a week
  5. Multiply by the number of days you use this room for business

So if you have 8 rooms in your house, and use 1 for business, you can claim 1 eighth of your household costs, in theory.

But if you only work from home 2 days a week, you then take that number, and can only claim 2 sevenths.

Messy!

If you’re employed or a director of your company, you can’t claim everything

You can only claim for things that help you do your job:

  • heating
  • electricity
  • work phone calls

You can’t claim for things that you use for both business and private.

Here’s HMRC’s guidance, if you’d like a long read!

If you’re self employed you can claim more of your utilities in your use of home claim:

  • heating
  • electricity
  • council tax
  • mortgage interest or rent
  • internet and telephone use
  • cleaning

But you can still only claim a proportion of these costs, based on how many rooms you use in your house for business, and how many days a week you work from home.

Here’s HMRC’s guidance if you’re self-employed and claiming use of home.

Let’s look at an example:

Maureen is a director of her own limited company, and works from home 2.5 days each week.

She has 7 rooms in her home, and uses 1 room as an office for her business.

Her heating and electricity costs are £3,261 each year.

  • Divide this by 7 to get the cost for her office room: £466
  • Divide £466 by 7 days, and multiply by 2.5 days that she works at home: £166.

So Maureen can claim £166 use of home for the year, which will reduce her corporation tax by £41.55, assuming her company pays 25% corporation tax.

But what about the approved rate of £6 per week?

Exactly! This would be £312 per year, saving corporation tax of £78.

Our advice:

We’ve worked out use of home based on household costs for our director clients on many occasions, and each time it works out better for them to claim the £6 per week approved rate. The benefits are:

  • Higher tax savings
  • Very easy and quick to calculate (£6 x the number of weeks you worked from home)
  • You don’t have to trawl through all your utility bills to find out the annual cost
  • HMRC have already approved the rates, so there is little chance that they will challenge your calculations

Can you charge rent to your business for working from home?

In theory you could yes, and this would be an allowable expense in your business accounts, so would reduce your tax.

BUT you would then have to declare this rental income on your personal tax return, and pay tax on it.

You’d also need a rental agreement between you and your business.

So this is not usually a good idea.

What next?

Check out other blogs which could also be useful if you’re working from home:

Go to our Start page if you’d like to work with us. We’re just asking for a couple of questions from you, then we’ll call you back.

We can’t wait to hear from you!

Sharon

 

 

 

sharon baker