If you work from home, you might be wondering what you can claim back as tax relief for using your home as your office. Homeworkers tend to have higher utility bills from lighting, heating, and running laptops and other devices. So you might be wondering if (and how) you can claim any of that back.
Self-employed people in the UK need to submit self-assessment tax returns every year. Your expenses over the course of the year are subtracted from your income to calculate your profit. Then, HMRC can calculate how much you owe in taxes for that financial year. The higher your expenses, the lower your profit will be – so you’ll pay less in taxes.
If you work from home, there are ways that you can claim tax relief for the use of your home as an office. That means that you can claim these expenditures as tax-free expenses.
But the rules can be pretty confusing. There are lots of different factors to consider, such as whether you use the room solely for business.
So in this article, we aim to clear up any uncertainties! Read on to find out whether you can claim, what you can claim, and how to calculate it!
Can I claim use of home as office?
You can claim the use of home as office if you use your home for business purposes. That could be for filing business reports, carrying out online consultations, or any other business use.
When you claim your home as an office, there are two options. You can either pay a flat rate or work out the exact costs of using a room in your home for business purposes.
What does use of home as office cover?
The use of home as office covers the cost of lighting and heating the space you use. You can also include the cost of running your laptop and other devices.
It’s essential that you work out the percentage of utilities used when working. You’ll need to keep in mind how much of the house you use and for how long in total to help you calculate a correct and reasonable amount.
If you’re confused about expenses for tax relief, you can ring up the Self Assessment helpline. They can advise you as to what is eligible or not.
How to Use the Simplified Expenses Method
HMRC has brought in a straightforward method for calculating your home-based expenses at a flat rate. The Simplified Expenses method allows you to claim a flat amount each month according to how many hours you work at home. Simplified expenses cover the utilities you pay for the time you’re working from home.
Not everyone can use the flat rate simplified expenses method. You’ll need to make sure you’re eligible. Sole traders can use this method. You can also qualify if you have a business partnership (but no companies as partners).
Working from home for more than 25 hours per month is another requirement to pay this flat rate. So if you work from home for less than 5-6 hours per week, you won’t be able to claim anything with simplified expenses.
If you use the Simplified Expenses method, you don’t need to calculate the exact cost of your utilities as a result of home working. It’s a very quick, easy way to find out what you can claim. This is especially handy if you’re not sure how to calculate the actual costs of using a room as your office.
Working out the Actual Costs of Your Business
Whichever method you use, you should keep track of all your expenses over the business year. That means keeping records of your expenditures on eligible business items. You’ll need to keep your bills and receipts for several years for tax purposes.
Sometimes, HMRC may need proof of your expenses. So it’s always best to be prepared in advance, rather than panicking and scrambling around for paperwork. Try to develop a simple yet effective way of filing all your business paperwork and receipts away. This little technique could save you a lot of stress and sleepless nights when tax season rolls around.
How much can you write off for a home office?
How much you can write off depends on which method you use – simplified expenses or by calculating the actual costs. If you decide to calculate the exact costs of using your home office, then that’s what you can claim back – so long as it is a reasonable figure.
If you’re using the flat rate of simplified expenses, how much you can claim will depend on how many hours you spend working from home each month. This is how it works:
- For 25 to 50 hours per month, you can claim £10 per month.
- For 51 to 100 hours per month, you can claim £18 per month.
- For more than 101 hours per month, you can claim £26 per month.
You’ll need to keep a record of how many hours you work each month. If this number varies, you’ll need to write off the relevant sum for each month.
Imagine the following situation: the business use of your house is 30 hours/month for 6 months, which falls into the 25 to 50 £10 category. But it’s 60 hours/month for the following six months, which falls into the 51 to 100 £18 category. You could claim £10 for 6 months and £18 for 6 months, for a total of £168.
Tax Relief for Employees
It’s becoming more common for employees to work from home, too. The numbers of homeworking employees are booming. In 2016, around 38.8% of the global workforce worked remotely. Studies predict this to rise to 42.5% in 2022.
While employees don’t need to fill out a tax return, there is help for homeworkers. Employers can pay tax-free payments up to £4/week or £18/month to cover the extra expenses incurred from working at home. Find out more about the rules around homeworking employees here.
How to Claim for Phone and Internet
The calculations for simplified expenses don’t include phone and internet bills. You’ll need to claim for them separately. You can claim for your internet and phone use by calculating the actual costs for the time you spend working from home. One way to do this is by adding up the cost of business calls – don’t count any calls made for personal reasons in this calculation.
For internet bills, you can work out the percentage of time you use the internet for business purposes. Then, you can claim that percentage back as tax relief.
What about the Tax-Free Trading Allowance?
Every self-employed person can claim a £1,000 tax-free trading allowance. So if your gross income (i.e., before subtracting expenses) is under £1000, you don’t need to file a tax return.
If your gross income is more than £1000, you can still claim that £1,000 trading allowance. But you cannot claim this allowance and expenses, so you’ll need to think carefully about which way benefits you the most.
You might have very low expenses, in which case, claiming the trading allowance will be your best bet. Then, £1,000 of your overall income will be tax-free. So, you won’t be able to claim for the use of home as office on top of that.
It’s a different case if you do have considerable expenses (including working from your office). Then, it makes sense to calculate your expenses, instead of claiming the allowance. You can subtract this figure from your income, and you will only pay tax on whatever is left over.
Do I Need to Pay Business Rates for Council Tax?
You might be worrying that you’ll need to fork out business rates for Council Tax if you work from an office in your house. But that’s generally not the case.
If you only use one room for business purposes, there should be no need to pay business rates. That’s also true if you sell goods by post.
If you sell goods within your own home, you might need to pay business rates. You could fall into this category if you convert part of your house to run a business from it.
You can find out more about whether you need to pay business rates here.
To Sum Up
You can claim tax relief when you use your home as your office. But as you’ve seen, it can get a little complicated. You can choose between two main methods to claim expenses for the business use of your house.
It’s up to you whether you use the flat rate simplified expenses or work out the actual cost of the rooms in your home used for business. You may even use a combination of both methods.
Hopefully, you’ll have a better understanding of the rules around tax relief and expenses when you work from your own home. Filling out your Self Assessment tax return is never fun, but we aim to make it less stressful for you with this detailed guide.
If you’ve got any questions, feel free to drop them below! And check out more resources on working from home on our homepage.