The flexibility of working from home is one of the key factors for people starting their own business, providing the opportunity to avoid a stressful commute and work around family and health commitments.
But with that flexibility comes the responsibility of completing a self-assessment tax return and ensuring that you are claiming for the right things. Claiming home office expenses is an area we are frequently asked about at CRM, so here’s a brief overview.
What you claim for depends on whether you are self-employed or employed and you must be able to prove that you regularly use a room in your house for work. You can also claim tax relief on the cost of equipment and furniture for your home office.
If you are self-employed
There are two ways to claim: you can either calculate a proportion of your household bills or use HMRC’s simplified flat rate which is based on the number of hours you work at home. CRM has prepared a handy ‘Use of Home’ Claim Calculator to help you work out your claim, you can find it here.
HMRC’s flat rate doesn’t include telephone or internet expenses, these are calculated separately. The HMRC flat rate can only be used if you work for 25 hours or more a month from home.
|Hours of business use per month||Flat rate per month|
|25 to 50||£10|
|51 to 100||£18|
|101 and more||£26|
If you are employed
You can’t claim tax relief if you choose to work at home. However, you may be able to claim tax relief for some of the bills you have to pay for working at home on a regular basis. Your employer can pay you up to £4 a week (£18 a month) to cover your additional costs if you have to work from home. You won’t need to keep any records for this but for larger payments, records must be kept to substantiate the claim. If your employer doesn’t pay you the £4 per week, you can make a claim for the tax relief with HMRC. Check whether you can claim here.
If you run a limited company
For a limited company, there are two ways of working out your home office expenses: by using HMRC’s flat rate amount or by creating a rental agreement between you and your limited company.
Like an employee, you can claim £4 per week (an allowance of £208 per year) by using HMRC’s flat rate allowance. Alternatively, as long as you run your business through your limited company and follow the rules correctly, you may be able to claim more than £208 each year by renting your personal workspace in your home to your limited company and claim that as an expense.
To do this, you’d need to set up a rental agreement between you (the homeowner) and your limited company. Your limited company can deduct rental payments from your company’s pre-tax profit so that corporation tax is not payable on these expenses. You will need to account for this income and offset related expenses in your personal tax return each year.
For advice on whether this is the best route for you, or if you would like help to sort out your home office expenses, please get in touch with the experts at CRM on 01865 379272.