The working from home tax break
You have joined a firm as a partner and the new role requires you to work from home. You’ve read that you can claim a tax deduction for your household expenses, but how much are you entitled to claim? Helen Johnstone looks at the options and implications.
Self-employed homeworker
In this article we focus on how to calculate the tax deduction for day-to-day domestic costs when working from home if you are a sole trader or a partner in a business.
Broadly speaking, you are entitled to tax relief for expenses associated with working from home if part of your home is used exclusively for business purposes. The principles are no different to those if you rented a commercial premises for your business. You would expect to be allowed to deduct the cost of the rent, energy bills and so on. However, the difficult part of home-related costs is that they are likely to have both business and private use. This means that it is necessary to apportion costs between the two elements. There are two methods for this.
Method 1 – simplified expenses
The most straightforward option is “simplified expenses”. This is a flat rate deduction which depends on the number of hours you work from home. You need to work at home for at least 25 hours per month to entitle you to any deduction. You therefore need to keep a record of the hours you work, then use the table below to find the tax deduction. The drawback with this method is that the maximum deduction is a stingy £312 per year.
Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26
The simplified expenses claim is allowed even where you don’t have part of your home exclusively set aside for business use.
Simplified expenses don’t cover phone and internet costs, so make sure you also claim the business proportion of these.
Method 2 – actual expenses
Alternatively, you can claim a fair and reasonable part of your household bills. This can include fixed costs such as council tax, rent or the interest element of your mortgage payment. For example, if you use one bedroom as an office and there are six rooms in your house, you could claim one sixth of the costs. Instead, you could work out that the area of the room is, say, 20% of the total floor space and claim 20% of your fixed costs. If the room isn’t used exclusively for business purposes, you can apportion the costs by time too, e.g. if the room is used for business 50% of the time, divide the figure by two to get a fair result.
You can also claim variable costs like gas, electricity and water based on consumption, e.g. 80% of the electricity used between 9am and 5pm on weekdays, or you can apportion such costs by area and/or time too.
A tax deduction for home-related expenses that you incur wholly for your business can be claimed in full, e.g. additional insurance premium for business use of your home, redecoration of your home office and so on.
IN SUMMARY
There are two ways to work out the tax deduction. For simplicity use the flat rate deduction, based on your hours of business use, or apportion your actual costs according to how much of your home you use exclusively for work. The maximum claim using the flat rate deduction is only £312 per annum so apportioning your costs is usually worth the extra effort.
Contact the JRW Hogg & Thorburn team to discuss this further and any other related questions you may have.
