Use of home as an office is an increasingly popular trend among the 600,000 new businesses starting up every year in the UK.
On the surface of it, there’s lots to like about using your home as your office. There’s no commute, there’s no office rent, there’s no business rates, and there are no business-only bills like gas, electricity, water, internet, and so on.
Some people love working at home. Others hate it. If you’re not sure how you feel about it, try it for a few weeks and then make your mind up.
If you do choose to use your home as your office, are there any ways to claim back expenses from HMRC? Yes, but it’s an area you have to be careful with.
Flat rate method
These claims are not particularly generous but, if you have neither the time nor inclination to be forensic in your calculations, HMRC will allow the following:
|Hours worked at home per month||Amount you can claim per month|
|0 to 24||£2|
|25 to 50||£10|
|51 to 100||£18|
|101 or more||£26|
Can my company rent a room in my house?
Yes, A limited company can deduct those rental payments fully from its profit meaning a lower corporation tax bill.
However, the rent you receive from your company will affect your own personal tax position. Your company might save money but it might end up costing you more money personally.
Be careful not to “overpay” rent for the space in your home, make sure there is, in case of an inspection, an actual room dedicated to work, and have a legitimate rental contract in force between you and your company.
Telecoms and internet
If you make any personal calls from a landline phone, you can’t claim back any of the rental costs of the phone or the phone line. Actual phone calls can be claimed back however.
You can install a second landline in your home, specifically for business purposes, and claim back the total cost of the line. Make sure the line is in the name of the business and that the bills are paid via the business.
For mobile phones, all expenditure can be claimed back, again as long as it’s in the business’s name and the business pays the bills.
If you have broadband at your home, you can claim for the business use of it although you will need to keep records clearly demarcating how much of the usage was business-related. One way to ensure that you can claim it all back is by having the broadband account in the name of your business and making sure your business pays the direct debit.
As long as there is no significant personal usage, you can claim it back against taxes. However, if there is personal usage, HMRC will treat it as a benefit-in-kind and tax you for it at your highest rate of tax (20%, 40% or 45%). For limited companies, that benefit-in-kind may also attract National Insurance Employers’ Contributions too.
Computer software can be claimed back on in the year of purchase however if the software is expensive and likely to be used for more than two years, an exception may be made regarding the tax year of purchase.
Computer-related costs under £500 will normally be fine for the revenue column of your accounts however anything over that amount may be treated as capital expenditure for which you could make a claim on Annual Investment Allowance (if you’ve spent less than £200,000 on AIA assets that year) or writing down allowances (if you’re out of AIA credit).
If you buy any office furniture for your home office under £300, HMRC are unlikely to dispute it as a business expense.
If they do however, or if your furniture costs more than £300, you may have to explain how it’s only used for personal reasons and not business reasons.
For example, if you spend more than 100 hours or more a month working from home, that’s likely to be fine. However, if you spend 20 hours or less working from home, that’s much more contestable in HMRC’s eyes.
This will be an added expense but it will provide a form of proof to the taxman that you are working from home.
Weigh up this option carefully though because the amount you pay in business insurance may drastically reduce the amount of financial benefit you gain from claiming expenses back because of the size of the premiums you’ll pay.
Can I claim back against mortgage expenses and other running costs?
Yes, but please be aware this is another area open to interpretation.
Think about the number of rooms in your home. For argument’s sake, let’s say there are six rooms. Your mortgage is £800 per month. You have one room set aside for work.
Then, let’s say that you paid £100 a month for electricity, £60 for gas, £130 for council tax, and £20 for insurance.
In total, your mortgage and running costs are £1,110 a month.
£1,110 divided by six is £185. If you were working full-time for 40 hours a week in your home carrying out revenue-generating activity, HMRC “may” consider that a fair claim.
But what if you were only working 20 hours a week in your home working and spending 20 hours elsewhere? HMRC may now consider that £185 is not reasonable – they may want to halve it to £92.50.
To obfuscate matters further, what if that room, even if it’s set aside for an office, has the kids’ PlayStation 4 in it together with a couple of puffee cushions beneath a brand new 64” 4K HDR TV hanging proudly on the wall?
It’s mixed use. So, now that 20 hours for £92.50 doesn’t seem so fair to the taxman anymore. He may want to halve it because the kids enjoy playing on the console in there. Your tax claim may now be judged to be equitable at £46.75.
And for £46.75, do you want the taxman poking his nose in to your affairs?