As all contractors are aware, claiming expenses is a great way of reducing your annual tax bill. When it comes to familiar items like business mileage, office supplies and client lunches the rules are pretty black and white; there’s no limit to the amount of genuine business expenses you can claim every month providing you’re familiar with HMRC’s guidelines.
However, claiming home office expenses is more of a grey area, one fewer contractors choose or are able to take advantage of. To claim for Use of Home as Office Expenses, as a director or employee of a limited company, you must undertake substantive duties related to the main trade of your business at home and furthermore be unable to carry out these duties at your client’s site. So, if you could work at our client’s site but choose to work from home then the tax relief is not available.
HMRC allow a flat rate claim of £4 per week for home expenses without the need for keeping receipts but it is possible to claim more for home expenses. Here’s the low down on how to squeeze the maximum tax savings from your home working and, more importantly, how you can apportion between business and private home expenses.
1. Define Your Home Working Activity
For the purposes of this activity, we’ve pigeonholed all home workers into two convenient species: the accidental/kitchen table home worker and the dedicated home worker.
- The accidental/kitchen table home worker has no distinct office and doesn’t consider himself to be a home worker, but he frequently works on his business, tidying up loose ends or organising his admin and expense claims for the week, at home. This can gradually evolve until he is working from home on a more regular basis. They’ll often clear some dedicated space in one room to use as work area, but it’s probably not exclusively used for business. For example, it may store domestic and private belongings, or double up as the kitchen, bedroom or garage. They may work predominantly at their client’s site but will also be required to complete some business at home, which they are not allowed to do on site.If this is how you define your home working activities, you should be able to claim the fixed amount of £4 per week (£18 per month) without any undue attention from HMRC.
- The dedicated home worker regularly (or always) works from home in a more clearly defined ‘office’: whether this is a converted garage, a free-standing garden studio or a spare bedroom doesn’t matter. The important bit is that this room is primarily used as a work space and you will be carrying out substantive duties relating to the business of your company at home e.g. an IT Consultant may occasionally work at a client’s premises but may also design, develop and market software from home as part of the company’s business.
So here’s the important part: whether you are a member of these groups or any other sub-species, it is possible to save money by claiming for home working expenses, as long as you follow the rules. In order to do this, you need to figure out exactly what you can claim, and how you measure it. You can find some HMRC examples of claiming for home working expenses here.
2. Understand what you can claim as home office expenses
If you want to claim for more than the fixed weekly amount, and you use part of your home for business, you can claim for expenses incurred “wholly and exclusively” in the performance of your duties. This means that you can deduct a figure that relates to business usage, which must be clearly separated from private usage. Home expenses broadly fall into two categories: fixed costs and running costs.
- Fixed costs relate to the whole house and have to be paid even if there is no business use, these therefore cannot be claimed. They include costs such as, Council Tax, mortgage interest, insurance, general repairs and rent.
- Running costs relate to expenses where the bill may vary with the amount of business use. They include telephone calls, metered water, cleaning and heat and light. HMRC officers are now instructed to “accept a claim based on any reasonable basis” provided that apportionment is based on usage.
3. Measuring Your Usage
In their perfect world, HMRC might ask you to separate private home expenses from your business ones by measuring out your electricity usage by the watt and apportion it accordingly. But in the real world, they realise that people may find this slightly impractical, so they have produced guidelines to dictate how to apportion home expenses correctly.
- Area: what proportion in terms of area of the home is used for business purposes?
- Usage: how much is consumed? For costs such as electricity and gas the total cost should be apportioned by room. Therefore if your house has five rooms of approximately equal size, and one of them is used as a home office, then 20% of your heating and lighting costs can be claimed for business usage. For costs such as telephone and broadband, a percentage can be used to split the amount between business and personal use.
- Time: how long is it used for business purposes, compared to any other use?
As well as working out the percentage of your house that you’ve dedicated to business, you may also need to time apportion some expenses. Using an example, let’s say that you have a total figure of £4,000 that you are going to apportion. If your house has 6 rooms and you use one room, then 1/6th is apportioned, i.e. £667. If you work 10 hours per day then you apportion the costs for that room for business usage, i.e. 10/24. Therefore £667 x 10/24 = £278.
If HMRC ever carried out a check on your accounts, they would expect you to be able to produce detailed calculations and relevant invoices relating to your claim.
4. Renting a Room to your Company
A final option is to set up a rental agreement between yourself as an individual and your limited company. You can then charge rent to your company and include a proportion of your mortgage interest or rent that you pay on your home. The rent charged must be commercial, you must have a room in your home dedicated to your business and there should be a formal rental agreement in place. You must be aware that if you choose this route, the rental income you receive must be included on your self assessment tax return and it may lead to a partial restriction for the Capital Gains Tax relief available when you sell your only or main home.
If in doubt…
Hopefully all this makes it crystal clear how, and what, to claim for business expenses, but if you’re in any doubt the best advice is, of course, to have a chat with your accountant, who will be familiar with the many quirks, case studies and disputes that have arisen in the past relating to home expenses.
Whether you’re just starting up, stepping into a new sideline or a long time contractor, we understand that your work is constantly evolving and changing. With innovative software and clear advice from our friendly experts, we ensure all our clients can simply manage their accounts with confidence; no matter what they’re working on, where they are or who they’re working with.
I use my work office during the day from 9am till 5pm and use my home office in the evening and weekends on average 2 and1/2 hours in the evenings and 5 hours at the weekends can i claim this tax wise
Hi Roger
Yes, you can claim for home office use, even if you have another office elsewhere.
Really useful, thanks. I currently use a spare bedroom as an office but want to convert an integral garage for the business. This would be solely for business use and would have its own entrance also – would the conversion costs be solely attributable to the company?
Yes, as long as the costs aren’t excessive and solely for business use then you can claim this via your company. You’ll need to ensure that the conversion is for business use, and not just a stepping stone for a final usage – e.g. converting a garage into a granny flat, but using it as a office in the interim to claim the expenses. Also, if you’re making a dedicated conversion you may well be subject to business rates on this part of the property. You should visit the Valuation Office Agency (VOA) for guidance and examples.
I am planning an extension to use soley as an office mondy to friday 9 – 5 and some weekends this requires a seperate entrance for visitors and contractors i train on the premises would I be able to claim building costs or reclaim any of them obv i can them claim Tax allowances on this …when it is set up …presently using an upstairs box room too small for my needs …also growing family requirment so need this room back
Hi Wendy – please see the response to JM above.
What a great blog – I totally agree with Alan – I am newly self employed and trying to work out what I am entitled to claim has been painful to say the least! This page has made it so simple and a lot simpler than HMRC website.
Superb blog. Answered all the questions I had in just the one blog. Many thanks:)
Thanks Nathan 🙂
Hi I am currently doing my tax return for my rented property, I wasn’t aware I can claim for my home study, I would suggest that its used minimally for accounts and expenses. do you think I will be able to claim anything for this usage.
Paul
Hi Paul. Where a home is used partly for business purposes a fixed rate deduction is allowed for household running costs and is based on the number of hours spent wholly and exclusively on business activities in the home. It is only available if the hours spent exceed 25 per month. If the number of hours worked are 25 or more then £10 per month can be claimed, this increases to £18 for more than 51 hours spent per month. Alternatively, a calculation can be completed identifying the trade proportion of the actual household running costs.
Can I claim business use of home from two properties that I live in? One is a rental property and the other is one I own. I split my time between two properties so will I have to apportion my claim to the time spent in each property?
Hi Ragini. Unfortunately we don’t have sufficient information in your question to answer with confidence. Would you like to tell us more?
I work from home office in a sales role. Nearest company office is 250 miles away so I have to use a home office. I need new office furniture i.e. computer desk, shelving. The room is solely used as an office I have also just had room carpeted as part of whole house. What can I claim for and how do I claim? I am an employee, not self employed.
Paul, please see our article above regarding claiming for Home Office expenses or check for more details here.
I work on a self employed basis but only do specific work for one financial advisor. I have previously had an accountant but feel I should be able to do my own tax return as its relatively straight forward.
please can you help me with some queries as HMRC don’t answer the phone (20 minutes holding)!
I have a detached house with 12 rooms. I use one room 5 days a week 9-5. What proportion do I claim for Gas & Electricity?
If I have brought items eg. venetian blinds for office, shredder, chair – what can I claim here – is it the VAT – I am not VAT registered?
What proportion of my mobile phone contract can I get compensated for. I do use if for business purposes but not solely.
Any help really appreciated. The accountant wouldn’t want to help as he knows I’ll do it alone if I can.
Thanks
Louise
Hi Louise.
If you are not VAT registered then you cannot claim VAT back however the purchase of assets to use in your business are allowable for tax purposes by claiming capital allowances.
HMRC accept that most businesses will require a mobile phone so one is allowable as long as the personal use is minimal. You can also read their guide here.
I am PAYE working for BT Group in the UK. As a full time homeworker what can I claim on a standalone home office that I have just purchased for £7K with concrete hard standing and electrics another £1K? Can I claim depreciation on the office (timber framed) or claim on the actual outlay? The office is used purely for being a homeworker, there is no personal usage whatsoever.
Unfortunately you will not be able to claim tax relief for the cost of the office as this is a static structure and cannot be classed as plant. Therefore capital allowances will not be available. There may be some other expenses that you can claim, please see here for the HMRC guidance.
I rent a room in a shared house and run a business from it as well as living in it. The rent includes all my domestic bills. I would estimate that 20% of my time in the room is spent doing admin and telephone work. Are there any guidelines on this kind of set up and tax relief?
Yes, you can claim tax relief for using your home as an office. This should be done as an ‘expense’ through your business.
Hello, I am a full time employee and have a perminent office base from 8am until 5pm Monday to Friday, however most nights I end up working from home for 2 hrs in a small office room I have upstairs, can I claim tax back on this and as I have been doing this for the past 7 years am I able to claim any tax back on this? Kind Regards Dean Trappett
You may be able to claim tax relief, please see here for the HMRC Guidance for working at home.
Hi
Do I need a rental agreement between myself and my company for rental of the room being used for office space?
Hi Irene. If you are using space in your home for your office you can charge your company for Use of Home as Office, this does not require a rental agreement.
Hi,
I’m planning a substantial renovation of the extension of my house. This includes the home office, bathroom and a hallway. The office is purely for work purposes and won’t be used for anything else. However I only work from home 6-7 days per month. I’m aware I could claim part of the renovation costs as a business expense, but am not sure how to work out the amount to claim? Should I split out the renovation costs for just the office and then claim a percentage of those costs, given I only work from home a certain percentage of the time?
Thanks,
Hi Matthew,
We recommend that you take care when considering if your company is to pay for improvements to your home – the changes if paid for by your company are likely to result in part of your property being reclassified as a business premise. In order to understand this you would need to speak with your Architect and I suspect your local council also. Should part of your property be reclassified for business purposes it means that you will have to consider matters including:
Your architect and local council are better placed to advise on change of use of a premises and all / any other ramifications.
There is also a future complication when you come to sell your property. As part of the property would be classified as a business premises, there are likely to be additional and not insignificant costs and potentially taxes associated with the sale of your property.
For these reasons most people prefer to keep their home their own and pay for such developments and upkeep personally. In areas where the company uses part of the homes space for business purposes, if there is a significant amount of time spent working from home then a greater sum of the household running costs can be paid for by the company.
I’m a full-time employee, working from home (I was transferred under TUPE regulations to a new company 200 miles away, so am not a home worker by choice). The new employer does not pay anything towards my costs, and I didn’t claim anything on my SA tax return last year.
Can I set the cost of a new computer (essential for my work) against tax when I do my next SA? It would be purely for business use as an employee of this company, not for personal use.
Other than that, on my next SA can I claim back the £4 weekly expenses allowed by HMRC without receipts? If so, can this also be backdated to the previous year as I’ve only just read about claiming this.
Hi Jill. If you are using the computer purely for the business then you can claim tax relief for the cost of this. You can also claim for the £4 per week for both years as you have four years to make a claim.
I have a building in the garden which i use solely for sewing work i am fitting new windows are these tax deductable please?
If the building is purely used for business the replacement of the windows can be treated as a revenue expense and deducted from profit for tax purposes.
Hi. I’m the director of my ltd company, I run the business from different premises but I do work from home. In my annual company accounts this year I am claiming the home working allowance at £4/week. I have only just found out about this so this is the first year I’m claiming it – can I backdate this allowance in my accounts for previous years? If so for how many years?
Many thanks
You can claim the allowance for any years that you genuinely incurred use of home as office costs on behalf of the business and have not yet recovered them.
I’m a sole trader and wish to convert a pantry in my home to an office. I would use this space for approximately 80% of my work activities and the rest of time would be for a music room for the children. Can I claim back a percentage of the renovation costs?
I enjoyed reading your post, many thanks for your help,
If your home is altered, improved or upgraded which makes it better than it had been before then the cost of the work will be classed as a capital expense and therefore you cannot claim for the costs.
If you are decorating/re-organising the space you can claim 80% of the costs as this is the proportion that relates to your business use. The deduction for personal use due to a dual purpose of the room will ensure that no capital gains are chargeable when you sell the house.
As a private landlord classed as an ‘accidental home worker’ am I eligible to claim the flat rate £4 per week home office expense?
The £4 per week flat rate claim allowed by HMRC for incidental home expenses applies to employees.
The working from home rules are a grey area and there is no actual set rate for landlords so you may want to seek clarification with HMRC in regards to what would be acceptable.
You should also refer to HMRC’s guidance on what expenses are allowable when you let property.
As a private landlord (one property) am I eligible for the £4 pw incidental home expenses, I would class myself as an ‘Accidental home worker’.
The £4 per week flat rate claim allowed by HMRC for incidental home expenses applies to directors of a limited company.
You should refer to HMRC’s guidance on what expenses are allowable when you let property.
please, can you tell me how I can calculate how much tax relief I can claim for a office? I live in a two bedroom rented flat and one bedroom is used for storage and office work. I am a mobile podiatrist
If you operate through a limited company, HMRC allows a flat £4 per week fixed expenses which can be claimed back from the company, without the need for any receipts.
If you are self employed you can calculate your allowable expenses using a flat rate based on the hours you work from home each month. Please see the following link for further details:
https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home
You may be able to claim more than the fixed rates however this would involve preparing a calculation based on your home bills, the rooms you use for business and the hours spent working from home.
My home office is in my conservatory. It is a dedicated office space and I do not use to for anything else. It is so hot in the summer, and so cold in the winter. This summer I have had to move into my dining room to work, and as I have people in to work with me I have had to be aware of health and safety and appropriate working conditions. I have actually had to put people off coming in as I cannot house them all in my living room as I cannot provide an adequate desk working environment. So, I am having a suspended insulated ceiling attached to the roof. Then we can all move back in and normal work can resume. I have been told getting the insulated ceiling is a capital expense and I cannot put it through my business, not even a penny – which I find difficult to understand, because if it wasn’t my office I wouldn’t be having the roof done; I would just NOT use the conservatory in the midday heat.
Is this statement correct?
Hi Deborah
If you use an element of your home as a dedicated office space then you open up your house to becoming subject to capital gains as part of it will be a business.
You may also need to report to your local council this status to comply with local business rates.
Ensuring the office space is used personally negates the above, however, it does mean that the dual purpose status prevents the work carried out being charged through the business, as it would not qualify as wholly and exclusively for the purposes of the business.
Hello, I am a self-employed teacher and I use my home as office. I have a desk in the spare bedroom which I use every day, probably up to 15 hours per week. We had the windows changed recently and are also planning more renovations (carpets etc). Can I claim a percentage of this as allowable expenses? Am i right in understanding that I can only claim on work done solely on the room that I use for my office? many thanks!
Hi Severine
When you are self employed you may be able to claim a proportion of your bills for your Use of Home as Office expense for things like heating, electricity, council tax etc. You will need to find a reasonable method of dividing your costs, for example by the number of rooms you use for business or the amount of time you spend working from home.
Alternatively, HMRC allow a flat rate claim based on the hours you work from home each month. See this link: https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home
You will be able to claim office furniture that is purchased to complete the work from home such as desk, chair, computer etc. These will be considered fixed assets of the trade and capital allowances recoverable.
In regards to the renovations, as these are being completed on your residential property they should not be expensed as a business cost, as you have an element of private use. This would include the windows and the carpet as you may in the future no longer use the room as your office space.