Before claiming expenses for working at home you should be sure you actually use a home office. If you work away and are claiming accommodation and travel for long periods at a time, it could raise questions as to whether your home office is really used for work. It’s not enough to spend five minutes a week updating your records or completing your expenses claims. A dedicated room or work area is required and it should be furnished for business purposes. Using the dining table in the kitchen is not sufficient. You should only claim if you genuinely do use a proportion of your home solely for running your business. It’s not always easy to justify a home-office claim regardless of whether you're a sole trader or a limited company.
There is more than one method of arriving at a reasonable figure for claiming expenses for working at home. Some methods may be more appropriate for a particular type of expense.
The factors to be taken into account when apportioning an expense include:
Allowable expenses for home working broadly fall into two categories, Fixed Costs and Running Costs.
Fixed costs relate to the whole of the house such as council tax, mortgage interest, rent, insurance and general repairs. They are costs that would be paid regardless of any business use. Provided you have confirmed that you do work from home and have a dedicated room or work area, a proportion of these costs are allowable during a tax year based on the area (as a percentage of the whole house) and duration it is used.
Council Tax: Council Tax is a tax on property. HMRC states that ‘in principle, such an expense may be allowable in those instances where other property based expenses are deductible’. HMRC makes no definitive statements around the deduction of a proportion of Council Tax expenses.
Mortgage interest: If part of your home is used solely for business purposes then you can claim an appropriate portion of the mortgage interest as an allowable expense. Repayments of capital are not allowable as part of your business costs.
Rent: If you rent your home, part of the rent is an allowable expense provided part of the home is used solely for business purposes. The allowable expense is the proportion of the rent paid to the landlord that is properly attributable to the part of the home being used. You cannot charge a separate rent to your own business.
Insurance: If business use is covered by a separate policy, all of this cost is allowed in full, with no part of the household policy being allowed. Otherwise, an appropriate part of the premium can be allowed.
Repairs and maintenance: A proportion of the cost of general household repairs and maintenance is allowable in line with the proportion that the house is used solely for the business. Examples include painting of the exterior or repairs to guttering. Repairs or redecoration that relate solely to a room not used for business use is not allowable. Similarly, redecorating a room used solely for business use is allowable.
Running costs relate to expenses where the total bill may vary with the amount of business use. They include cleaning, heat and lighting and power.
Cleaning: If a cleaner is employed to clean the house, including the office, a proportion of the expense is allowable.
Heat, Light and power: A proportion of the heating, lighting and power costs of a room used at times solely for a business purpose is allowable. You should ensure that the proportion you claim reflects the actual usage. HMRC will accept any reasonable estimate where usage is minor. If your usage is higher, consideration will be made of your type of business; a commercial photographer with specialist lighting equipment will have a higher power usage than a business owner using their office to write up records.
Metered Water Charges: For typical home office use HMRC will not allow any proportion of water use as a home based business expense.
