If you are self employed and work from home, there are expenses you can claim for, but it depends on your status.
If you have a work-from-home parent, you have the flexibility to balance childcare and work-life from the comfort of your own home. The freedom to pick your place of work can mean working more efficiently and dedicating more time to the things that matter. If you’re a sole trader or contracting through a limited company, you may be eligible to claim expenses for using your home for business. The rules set out by HMRC are strict. However, if it is classed as an allowable expense, you can claim for the running costs incurred as a direct result of business use.
The rules differ if you’re operating through a limited company or if you’re a sole trader, so it’s vital to seek advice from your accountant.
If you use part of your home as an office for business purposes, you may be able to claim the running costs as an expense and benefit from tax relief. To successfully claim expenses, you must be able to show legitimate use of your home as a workplace. You must regularly use your home as an office, rather than just occasionally use it for work. You will not qualify if the majority of your working time is spent in meetings out of your home office.
If you are working through a limited company and you use your home as a workplace, you may be able to claim the running costs as an expense. The flat rate which can be claimed is £4 per week and you do not need to retain receipts to claim this.
As the expense claim is a tax-allowable expense, the company will receive Corporation Tax relief. The reimbursement from the company to yourself for the use of your home will not be subject to personal tax and does not need to be recorded on your Self-Assessment tax return.
The use of the internet and your mobile should be wholly and exclusively for business purposes to be allowable for tax purposes. To qualify for this, the contract must be between the limited company, not you personally, so the bills should be made out to the company. The contract should also be paid through the company business account, not your personal account to be claimable as an expense. Private use should not be significant as this could nullify your claim for internet and mobile usage.
As a sole trader, you can use the simplified method which is as it says on the tin – simple. The simplified method is a flat rate which you can claim weekly rather than individually calculating each proportion of the cost incurred for business purposes, such as utility bills. This method can only be used if you’re a sole trader and cannot be used if you’re a limited company. To take advantage of simplified expenses, you must use your home as a workplace for 25 hours or over per month. See below to check the flat rate:
Hours of business use p/m Flat rate p/m
25 – 50 £10
This does not include costs incurred from mobile phone and internet usage. However, this can be calculated separately to work out the actual costs.
The first set of guidance when using the actual costs method is to reasonably calculate the split between personal and business use. A common way of doing this is by calculating the number of rooms used as a workplace. This figure is then multiplied by the percentage of time used in the room for business purposes. For example, if you are a photographer, you may require the use of a dark room to develop photographs.
You can claim utility bills, such as water, gas and electric if this is used for business purposes. You may also be able to claim rent, council tax, maintenance and repairs.
Your eligibility to claim expenses whilst working from home will depend on individual circumstances and your employment status as either a limited company or sole trader. Take advice from an accountant to ensure that you comply with HMRC guidelines and operate in a tax-efficient manner.
*Jon Munnery is a partner at UK Liquidators, UK’s leading business recovery firm providing low-cost liquidations. Jon works alongside redundancy claim experts which company directors may be eligible to following their liquidation.