Working from home? Make sure you claim these expenses

With many of us having to take a different path in recent times a number have decided to strike out on their own. Plenty of small businesses start life in the home, at the kitchen table or in the spare room and the ever growing online digital world means office space is no longer needed by some.

More time at home means bigger bills for the running of it but you are entitled to include part of the running costs of your home in your accounts, which will save you some tax. Here's how to work out how much you can claim.

Two methods for calculating business use of home;

If your business is eligible to use the new simplified accounting method you have a couple of options for working out how much to claim for business use of home.

If you're a sole trader or in a partnership where all the partners are individuals rather than corporate bodies you're eligible to use the simplified accounting method. One option using this method of accounting allows a flat rate calculation for business use of home.

The flat rate method

The flat rate method simply asks you to look at how many hours a month you spend running your business at home, on average, and include a fixed amount in your accounts.

The amount varies with the number of hours per month you work at home, as follows:

• 25-50 hours: £10 per month

• 51-100 hours: £18 per month

• 101 hours or more: £26 per month

Here’s an example

You worked 40 hours from home for 10 months, but worked 60 hours during 2 particular months:

10 months x £10 = £100

2 months x £18 = £36

Total you can claim = £136

Using this method will be quicker than working out your actual costs. However, the figure might not be as high meaning that you could save time but pay more tax.

It is also important to note that the flat rate method covers only costs for heat, light and power so you will still need to work out how much you can claim for your other costs such as rent, council tax, telephone and broadband.

Analysing the costs method

If you want to claim part of the actual running costs of your home in your business accounts, then how much you can claim depends on the type of business you have and what work you actually do at home.

For example, if you're a builder or plumber you might spend an hour or two a week writing up your books at home, but spend the rest of your working life at your customers' properties. But if you're a self-employed web designer or professional blogger, you may well do the majority of your work at home.

HMRC says that you need to apportion the running costs of your home on a "fair and reasonable" basis between the private element of that cost, the part that relates to you actually living there, and the business element. But how do you do this?

One method is to work out how many rooms you have in your home and identify how many of those rooms you use for business and calculate how much time you actually use these rooms for business.

It is not a good idea to use any part of your home solely for business activities all the time and never use it for any private activities because capital gains tax will then be due on the part you use just for business if you sell your home. Instead, try to make sure that your work space serves a dual purpose. For example, use an office at home as an exercise space or for crafts, just make sure you have some relevant items in the space to prove its dual use.

Say there are 8 rooms in your home. You only use one for business, and 90% of the use of that room is for business. You would add up all the costs that you can claim and divide that by 8 and then by 90% to get the accounts figure for the business use of your home.

But what running costs in my home can you actually include in my accounts?

Here are some of the costs you might incur to run a home, which you may then be able to claim part of in your business accounts:

Mortgage and Rent

Mortgage repayment costs cannot be claimed as an expense as this is classed by HM Revenue & Customs as a domestic expense, which is a cost that you would be paying regardless of whether you are working from home or not.

Although your mortgage repayments are not able to be claimed as a business expense, you might be entitled to claim your mortgage interest.

If you are renting your home then a proportion of your rent could be claimed as a business expense.

Council tax

You can claim a proportion of your council tax cost.

Light and heat

You can claim the business proportion of your gas and electricity costs for lighting and heating in the room(s) you use for business.

Telephone and broadband

Remember that what you can claim for your telephone and broadband is not apportioned on the basis of the number of rooms in your home, but on what your actual usage of the line is.

You can claim the full cost of all your business use of the line, and a percentage of the line rental, based on how much you use it for business purposes and how much is for personal use. If working from home requires you to upgrade your broadband to a faster package then this cost could be claimed as an expense. A mobile phone that is used for business calls can also be claimed.

Printer Ink

Through working from home you will have to print out many more documents than you would normally. This will increase your ink and paper costs. If you are able to calculate the proportion of the cost that has been used for business you will be able to claim this amount as an expense.

Stationery

Some of your business related stationery costs such as business cards, paper, envelopes, pens and pencils and so on can be claimed as an expense.

Property repairs

If a property repair relates solely to the part that's used for business, you would include this cost in your accounts in full, subject to the business use of that room.

So for example, if the ceiling in your office/gym/craft room was repaired for £200, you wouldn't need to divide that by 8 because the repair was only for that room. You would multiply by 90% and include that amount (90% x 200 = £180) in your accounts.

If the repair is to the whole house, for example a repair to the roof, you can include that in the same proportion as you would the rent or council tax – so in the example above of your 8 room house, the repair cost allowed in your accounts would be £200 / 8 x 90% = £22.50.

If the repair is just for a part of the house that's not used for business - such as replastering of a kitchen - then you cannot claim any part of that repair in your business accounts.

Water

If you use a lot of your home water supply for business, for example if you run a car valeting service, then you would need to apply to the water company for this to be billed separately. You could then claim the full cost in your accounts.

But if your water use for your work is only minor, you cannot claim any of the cost for your business.

Claiming costs of working at home is not as simple as it sounds so it is always a good idea to talk to your accountant about all your expenses to ensure that they are legitimate claims.