As a small business owner chances are you work at least part of the time from home, for example catching up on paperwork. HMRC allows you to claim tax relief for some of your home expenses. This guide applies to sole traders.
The expenses you can claim a portion of include:
There are 2 ways to calculate what you can claim – the simplified expenses (lazy) method or the apportionment (splitting/sharing) method. It is worth doing a calculation to check which suits your business best. If you do more than a few hours per week at home it usually works out more advantageous to use the apportionment method.
Simplified Method
This is based on the number of hours you work from home each month; a flat rate applies depending on the number of hours. Each month you record the number of hours and apply the relevant flat rate. It means you don’t have to work out the percentage of bills that apply to your business. The flat rate covers heat, light, power, telephone and broadband/internet costs. For other costs such as mortgage interest and council tax you will still need to work out the business proportion.
The current rates are:
£10 per month for 25-50 hours working from home
£18 per month for 50 – 100 hours
£26 per month for over 100 hours working from home.
Remember: Simplified expenses can only be used if you work for 25 hours or more a month from home and it includes broadband and telephone costs
Apportionment method
This takes a bit more effort but can give you a figure which may be more realistic and therefore beneficial when working out your profit at the end of the year. Basically all you are doing is working out what share of your expenses can be allocated to running your business.
You can either base the apportionment (split/share) on the number of rooms used for business or on the percentage floor area used. Whichever you choose the principle is the same.
Broadband and Telephone costs are worked out seperately as they may be exclusively for business or if shared out the percentage of business use.
It is important you keep records that can back up your claim – e.g a diary logging hours worked at home . Your apportionment should be reasonable, documented and stand up to scrutiny by HMRC. We recommend that you do not to over-claim because this could trigger an HMRC aspect or full enquiry.
For help working out which method suits your business request a free consultation Find out more about our best selling packages .
The expenses you can claim a portion of include:
- Lighting
- Heating
- Mortgage Interest
- Rent
- Insurance
- Council tax
There are 2 ways to calculate what you can claim – the simplified expenses (lazy) method or the apportionment (splitting/sharing) method. It is worth doing a calculation to check which suits your business best. If you do more than a few hours per week at home it usually works out more advantageous to use the apportionment method.
Simplified Method
This is based on the number of hours you work from home each month; a flat rate applies depending on the number of hours. Each month you record the number of hours and apply the relevant flat rate. It means you don’t have to work out the percentage of bills that apply to your business. The flat rate covers heat, light, power, telephone and broadband/internet costs. For other costs such as mortgage interest and council tax you will still need to work out the business proportion.
The current rates are:
£10 per month for 25-50 hours working from home
£18 per month for 50 – 100 hours
£26 per month for over 100 hours working from home.
Remember: Simplified expenses can only be used if you work for 25 hours or more a month from home and it includes broadband and telephone costs
Apportionment method
This takes a bit more effort but can give you a figure which may be more realistic and therefore beneficial when working out your profit at the end of the year. Basically all you are doing is working out what share of your expenses can be allocated to running your business.
You can either base the apportionment (split/share) on the number of rooms used for business or on the percentage floor area used. Whichever you choose the principle is the same.
- Calculate the number of rooms in your home (you don’t need to include halls & bathrooms)
- Work out the number of rooms you use for business.
- Work out what percentage of time you spend working in each room. Base this on the number of hours a day a room is used, if a room is used for 10 hours a day and you work in it for 1 you can claim 10%.
- Total the bills you are apportioning, once you have done this divide by the number of rooms giving you the cost per room.
- The final step is to work out the percentage of the cost for each room you can claim then record this in your accounts.
Broadband and Telephone costs are worked out seperately as they may be exclusively for business or if shared out the percentage of business use.
It is important you keep records that can back up your claim – e.g a diary logging hours worked at home . Your apportionment should be reasonable, documented and stand up to scrutiny by HMRC. We recommend that you do not to over-claim because this could trigger an HMRC aspect or full enquiry.
For help working out which method suits your business request a free consultation Find out more about our best selling packages .
Simply Balanced Solutions takes every care in preparing material to ensure that the content is accurate and up to date. However no responsibility for loss to any person acting or refraining from acting as a result of this material can be accepted by Simply Balanced Solutions. You should always ask your accountant to give you specific advice which is tailored to your personal and business circumstances and properly implemented.
