Claiming Expenses For Working From Home
Working from home has become a new norm for many UK businesses. With this shift, the concept of ‘business use of home’ has become more prevalent and crucial. It refers to the expenses you incur by using your home as a workplace. These expenses can be claimed as tax deductions, reducing your overall taxable income. But, understanding what qualifies under business use of home expenses and how to claim these deductions correctly can be daunting.
It’s not just about the amount of time you spend working from home, but also the type of work you do and the space you dedicate to your business. Whether it’s a corner of your living room or a separate home office, the costs associated with maintaining that space can add up. The key is to know what qualifies and what doesn’t under the HMRC rules.
You might be surprised to learn that many everyday household expenses can be counted as business use of home expenses. This doesn’t just refer to the obvious costs like rent or mortgage interest, but also utilities, repairs, and even insurance.
Understanding the Business Use of Home Deduction
The business use of home deduction is a provision by HMRC that allows self-employed individuals and small businesses to deduct certain home expenses from their taxable income. The deduction is based on the proportion of your home that is used for business purposes. It’s important to note that this deduction only applies to expenses that are directly related to your business operations.
To claim this deduction, you need to determine how much of your home is used for business. This could be a specific room or space within a room. Then, you calculate the percentage of your total home expenses that relate to this space.
The rules around what you can and can’t claim can be complex. For example, you can’t claim expenses for areas of your home that are used for both personal and business use. However, if you have a separate office or workspace, you can claim the costs associated with maintaining that space.
How Much Can I Deduct for Business Use of Home?
There are two main methods you can use to work out the amount you can deduct for Business Use of Home:
The Flat Rate:
A simple way to calculate your deduction is to use a flat rate based on the number of hours you work from home each month. HMRC provides a flat rate scheme where you can claim a certain amount per month without having to keep detailed records of your expenses. This method is straightforward but may not give you the maximum deduction if you have high home office expenses.
The Actual Costs method:
Alternatively, you can calculate your deduction based on the actual costs you incur. This involves keeping track of all your home expenses and determining what percentage of these are for business use. This method takes more effort but can result in a larger deduction.
Whichever method:
For either method, the first step will be to determine the percentage of your home used for business. This can be done by measuring the square footage of your workspace and dividing it by the total square footage of your home. This percentage is then applied to your allowable home expenses to determine your deduction.
For example, if your home office takes up 15% of your home and your total allowable home expenses for the year are £10,000, you would be able to deduct £1,500 (15% of £10,000) for business use of home.
Keep in mind that you can only deduct expenses that are directly related to your business. So, if you use your home office for personal use as well, you would need to factor this into your calculations.
What are the typical Business Use of Home Expenses I can claim?
The types of expenses that qualify for the business use of home deduction vary. Some of the most common expenses include:
- Rent or mortgage interest: If you’re a renter, you can deduct a portion of your rent. If you own your home, you can’t deduct your mortgage payments, but you can deduct a portion of the interest you pay on your mortgage.
- Utilities: This includes gas, electricity, water, and internet. You can deduct a percentage of these costs based on the portion of your home used for business.
- Repairs and maintenance: If you make repairs or perform maintenance on your home, you can deduct the portion of these costs that relate to your workspace.
- Insurance: If you have home insurance, you can deduct a portion of your premium that relates to your workspace.
- Council tax: You can deduct a portion of your council tax based on the portion of your home used for business.
Remember, the key to claiming these deductions is to keep accurate records of all your expenses.
Common Mistakes When Claiming Business Use of Home Expenses
While claiming business use of home expenses can save you tax, it’s important to avoid some common mistakes:
- Overstating your expenses: It can be tempting to claim every possible expense, but remember, only claim expenses that are directly related to your business.
- Mixing personal and business use: If you use your workspace for personal use as well, you need to factor this into your calculations.
- Not keeping accurate records: Without accurate records, you won’t be able to calculate your deductions correctly. Plus, if HMRC ever audits you, you’ll need these records to justify your deductions.
- Not seeking professional advice: The rules around business use of home deductions can be complex. If you’re unsure, it’s always a good idea to seek advice from a tax professional such as ourselves.
Conclusion
Claiming business use of home expenses is a fantastic way to reduce your tax bill and boost your business’s bottom line. By understanding the rules and keeping accurate records, you can maximise your deductions and make the most of your home office.
Remember, the key is to understand what qualifies under business use of home, accurately calculate your deductions, and keep meticulous records. And, if you’re ever unsure, don’t hesitate to get in touch.
Running a business from home can be challenging, but by taking advantage of the business use of home deductions, you can make your home office work for you. So, start claiming your business use of home expenses today and see the difference it can make to your business.
