Both an individual Sole Trader (self-employed), and a Director of a limited company are able to claim expenses related to using their home as an office, however the rules surrounding this are different in each case and can be complex.
A Sole Trader
There are two methods for claiming expenses related to working from home:
1. Specific calculation:
You are able to claim a proportion of your costs for things like:
· Council Tax
· mortgage interest or rent
The method used by HMRC is to calculate the number of rooms (based on living spaces) you use for business and the amount of time you spend using that room. You then take this as a proportion of your costs.
Example as per HMRC:
You have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).
If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).
2. Simplified Method
Based on the table below you can claim a flat rate per month based on the number of hours that you are working from home each month. These rates do not include telephone or internet costs, and you can claim the business proportion of these bills separately by working out the business proportion of the bill.
Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26
To claim this amount, you must undertake substantive duties related to the main trade of your business and the business activity must be undertaken from your home. You cannot simply sort your business post at home and/or work at a client’s premises.
A Director of a Limited Company
1. Simplified Method
This is similar to that of a sole trader, but stingier!! HMRC will allow a flat rate of £4 a week without the need to maintain receipts or bills. You simply need to make a claim through expenses.
This method is simple to operate and the allowance does not need including on self assessment tax returns but often will not reflect the true costs incurred by those working from home on a regular or permanent basis.
2. Claiming Actual expenses
This is calculated in the same way as above, but can only be claimed on incremental costs.
A few considerations to think about:
Sounds simple, but there are a few complex considerations to take into account when claiming for these household expenses:
· Directors of a limited company can’t claim against fixed costs (things like mortgage payments, home insurance, council tax, and the fixed element of utility)
· If you sell your house after making your expense claim, it’s possible you’ll be hit by capital gains tax on your 25% gain.
· If you also use your home office as a guest room, you would avoid the capital gains tax, but would also see a reduction in the household costs you could claim.
3. Renting Space to the Company
There is an additional option whereby the homeowner charges a rental price for the use of the office, however this is particularly complex as a market rate needs to be determined, and affects both the company tax return and the individuals self-assessment, which can be further complicated if the home is jointly owned.
For any further information or help with claiming these expenses please contact me.