Working from home allowance – Our guide for the self employed

Guest post by Plus Accounting

If you are self employed, the chances are you will be familiar with claiming expenses, but do you know which additional costs you can claim for when working at home? Understanding what extras you are entitled might just feel like another task you’d be happy forget, but this article from Plus Accounting offers a thorough guide to make it easier.

Claiming Expenses

There are many advantages if you are self-employed and working from home such as the flexibility that it offers. As you are going to be incurring costs in running your business from home, you are entitled to deduct some of these costs against your self-employment income. The costs of working from home can reduce your profit and in turn save you some income tax.

There are two methods to calculate an allowable deduction for working from home and these are:

  • Simplified Expenses
  • The actual costs of running your home and taking a proportion for the business use of the room(s).

Each of these methods will be looked at separately.

Simplified Expenses

The simplified expenses route is a flat rate which has been set by HM Revenue & Customs and is designed to cover most of your home working costs.

The rates are based on the amount of time you work from home each month and these are:

Hours of Business Use per monthFlat rate per month
25 to 50£10
51 to 100£18
101 or more£26

The simplified expenses method can only be used if you work for more then 25 hours a month at home.

In addition to the simplified expenses, you can claim a proportion of the business costs for the following:

  • Broadband
  • Telephone
  • Mobile phone

So, for example, if the broadband is used 25% for business purposes, then, 25% of the monthly broadband cost can be claimed as an allowable expense.

The idea behind the simplified expenses method is to save time in having to collate all the costs incurred in running your home, however, this may not be the most tax advantageous method for you.

Actual Costs

The type of expenses which a proportion can be claimed for business use include:

  • Mortgage interest payments only. The capital repayment is not an allowable expense.
  • Rent – if you rent a home from a landlord, you can claim a proportion of the monthly rent you pay.
  • Council Tax – be mindful that if you use your home for business for a significant period you may have to pay business rates. This is something to be discussed with your local council.
  • Light and heat.
  • Property repairs – if repairs are undertaken to the room where you work, then a proportion of the repair cost is allowable subject to the business use of that room.
  • Water

To calculate the allowable cost of working from home using this method, you need to find a way to calculate the business and private use element. A reasonable way to do this is to calculate how much of your time is spent working in a room(s) and then allocating the expenses based on that proportion.

For example, if you have 5 rooms in your property and 1 of them is used for business use for 75% of the time, you will need to add up all of the costs of running your home. That figure is then multiplied by 1/5 and then again by 75%. The final figure will be the amount which can be deducted from your self-employment income.

If this method is used, then it is important to be just and reasonable when calculating the allowable expense as HM Revenue & Customs may enquire into the claim.

In addition to all of the above, you can also claim for the costs of the business use of:

  • Broadband
  • Telephone
  • Mobile phone

How can I claim for the expenses?

A claim for working from home as a self-employed individual will need to be made through the preparation of a self-assessment tax return and by completing the supplementary self-employment pages. It is always best to see which method is going to be the most beneficial for you to maximise the amount which can be offset against your self-employment income.

Other considerations

If you happen to use one room in your home as a dedicated office and it is not used for any other purpose then there maybe capital gains tax implications at the time you come to sell your property.

If you are self-employed and working from home, we will be very happy to assist you with your personal tax affairs, with our personal tax advisory and compliance services.

About Plus Accounting

As you would expect from a firm of chartered accountants, we offer a comprehensive range of tax and accounting services.  So whether you are just starting out or thinking about selling your business, we can provide you with the support and guidance that you need to keep control of your finances and plan your affairs for maximum efficiency.

What makes us stand out from the crowd is our genuine interest in you and your business.  We take time to understand what is important to you and then tailor our services to your requirements.    Whether this means helping you to set up a Xero accounting system, improving the profitability of your business or advising on complex tax issues, we can help you with all of these matters.

We believe in being involved with the local business community and that is why we network extensively, host regular business seminars, write blogs on topical issues and have many trusted, professional contacts that we can introduce to you for help on legal issues, HR, workplace pensions, raising finance and much more.

Do you need some advice about your workplace?

Get in touch and one of our team would be happy to help answer your questions.

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