What expenses can I claim when working from home?
As an accountant and in particular one working from the ‘cloud’, one question I’m increasingly asked is: what expenses can I claim when working from home? Whether it is a self-employed business, or an employee, it’s worth checking that you’re claiming the correct amount.
TYPES OF HOME-WORKER
Self-Employed (not companies)
If part of the home is used solely for business, even for a short amount of time, then a proportion of all the relevant costs listed below can be claimed as a business expense. Alternatively, you can claim a new fixed amount, which from April 2013 is £10 per month for working 25 to 50 hours per month, £18 for 51 to 100 hours pcm, or £26 for over 100 hours pcm.
Employees (herein including company directors) working from home can only claim a proportion of heat, light & power and business calls. How it is claimed depends on whether working from home is optional or not.
Employees who have a voluntary arrangement to work regularly from home but don’t have to, can claim the HMRC agreed rate of £4 per week (or £18 per month) from their employer, or more if they can demonstrate that the additional costs are more. These expenses can be paid to the employee tax free. However, if the employer chooses not to pay these costs, the employer can’t claim tax relief instead.
Employees required to work from home (e.g. if it’s the only office of the business) would normally claim the additional costs (or £4 per week) for working from home directly from their employer. If not though, they can claim tax relief for the costs instead. If you don’t prepare a tax return the costs can be claimed on form P87 from HMRC.
WHICH HOME EXPENSES CAN BE CLAIMED?
Only the self-employed can claim these costs
- Rent or mortgage interest (not capital)
- Council tax
- Home insurance (if no separate business policy)
- General repairs & maintenance (e.g. roof)
- Telephone & broadband rental
All home-workers can claim these costs
- Business telephone calls (all)
HOW MUCH CAN BE CLAIMED?
Most of the costs listed above won’t be billed separately between business and home, so you will need to calculate how much of each cost can be claimed. It’s usually calculated by floor area and/or time, but it could be more appropriate to use other factors such as number of people, or proportion of business telephone calls. There are no strict rules on how to do this, because each case is different.
For example, an office is used solely for business use which takes up about 10% of the floor area of a house. 10% of the eligible costs listed above could be claimed. However, if it was only used on average 3 days a week for business and something else the other 4 days, you would only claim 4.3% of the costs. But if 10% or 4% isn’t a reasonable estimate of the use of any of those costs, you could use a better method such as hours occupied in the office compared to the whole house.
CAPITAL GAINS TAX TRAP
If you claim that part of your home is used exclusively for business, the principal private residence exemption for capital gains tax will not apply to that part of the house for the time it was in business use. However, everyone has an annual capital gains tax allowance each year which for 2013-14 is £10,900.
It usually pays to estimate and claim your actual business use of home expenses, especially if you are self-employed. But beware that it is much more restrictive for employees and directors. As always, keep your workings and invoices to support the claim.
If you have any questions or comments please contact us. At CloudBook Accountants we provide proactive advice like this to our clients throughout the year, all included in our monthly fixed fees from £30 per month. Get an instant quote from our website now.