If you’re self-employed and work from home to run your sole trader business, you may be able to claim tax relief on some of your home-working expenses. We explain the different methods of working out your expenses if you work from home, and how to claim them back against your tax bill.
Working from home can be a cost-effective and convenient option for lots of self-employed people, removing the need to pay for additional premises (or travel to them!). You’ll normally be able to claim the proportion of additional household expenses which relate to your business, such as:
The cost of lighting and heating in your work area
Repairs which are necessary for your business operations. You’ll need to work out the proportion which applies to your business if you make repairs to the entire property.
Internet and phone access
Rent, or the interest charged on your mortgage repayments (but not the actual capital repayment amount)
Working from home expenses for limited companies
Claiming expenses if you run a limited company from home is a bit confusing because some rules around what you can claim for are different.
Operating as a sole trader means that you are your business, but a limited company is a separate legal entity to you as the director – so you’re treated as an employee.
It’s an important point because employees aren’t allowed to claim tax relief on ‘fixed costs’. These are things that you would pay whether you ran your business at home or not, such as rent, Council Tax, or interest on your mortgage repayments.
It’s a complex area, so have a chat with your accountant if you need help.
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How do I calculate expenses for working from home?
There are two methods of working out your expenses claim if you’re a sole trader and use your home for self-employed work:
Claim simplified expenses using HMRC’s flat rate (but only if you work 25 hours or more from home each month)
Work out the actual costs which relate to your business and claim tax relief on those
If the number of hours you work from home means you’re eligible for either method, then it’s entirely up to you which one you use. It’s well worth working out your expenses with both methods, and choosing the one most suitable for your business!
Simplified expenses are a way of claiming tax relief using flat rates set by HMRC. The amount that you can claim as a sole trader or a partner in a partnership is based on how many hours you spend working from home each month.
Running your own business can be unpredictable, so there might be months where you work more hours than others. The simplified method is worked out on a monthly basis, so you’ll be able to claim the amount of tax relief for the number of hours you worked that month.
You work 40 hours per month for 3 months, and then 150 hours per month for the remainder of the year. You’ll be able to claim:
3 months at £10 per month
9 months at £26 per month
For a total of £264
Claiming a proportion of your costs
If you decide not to use the simplified method, or if you’re not eligible to use it because you work fewer than 25 hours at home each month, then you can calculate your expenses on a proportional basis – known as the costs method.
Not every self-employed person is office based, so this method looks at how much of the property is used for work, and how much time it is used for.
For example, a self-employed plasterer spends most of their working time in other people’s houses, rather than working in their own. A graphic designer will spend more time at home.
How to calculate expenses using the costs method
Step 1: Count the number of rooms in your property
Step 2: Assess what percentage of time each room is used for work instead of normal domestic usage. A home office might be used for work 90% of the time, and 10% for personal use. A kitchen might never be used for work, and a dining area might be used on a 60/40 split
Step 3: Calculate your total household running costs for the year
Step 4: Divide your total household running costs by the number of rooms in the property, to give you a cost per room
Step 5: Multiply the cost per room by the percentage you use it for work
Step 6: The total business use figures will show you what you can claim as an expense for working from home
Step 7: Reassess this each time you complete a tax return!
What counts as a room?
According to HMRC a room is a “normal living space”, so leave out any bathrooms, hallways, or the porch. If you run your business from a garden office or another structure which is billed separately to the rest of your house, you can just treat it as one single room. If it’s included in the bills for the rest of your home, you should count it as another room.
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