If you are self-employed and have chosen to work from home to run your business, then you can claim a use of home allowance against your self-employment taxes. In this guide, you’ll find out the two ways HMRC lets you can claim for your home office, the records you need to keep and how to make your claim when you fill in your tax return.
Updated 2 September 2021
Table of contents
This guide is for self-employed business owners, different rules may apply if you have a Limited Company.
1. How to Claim for Your Home Office Against Your Taxes If You’re Self-Employed
There are two ways HMRC lets you claim a use of home allowance against your taxes to reflect the increased cost of utilities and a portion of your rent/mortgage against your taxes:
- By claiming a flat rate amount based on the number of hours you work or;
- By claiming a portion of your actual costs of your household bills.
2. How to Claim the Flat Rate for Working from Home
If you are self-employed, your first option for claiming for working from home is to claim a flat-rate amount based on the number of hours you spend working as an allowable business expense. This is part of what is known as simplified expenses, which aims to make it easier for people who work for themselves to claim for more complicated costs against their taxes.
When it comes to working from home, the flat-rate amounts for the 2021/2022 tax year that you can claim are:
- £10 per month if you work between 25 and 50 hours per month;
- £18 per month if you work between 51 and 100 hours per month;
- £26 per month if you work 101 or more hours per month.
The flat rate method means you don’t need to keep any receipts, which makes things a lot easier when it comes to filling out your tax return. But the downside is:
- You can only claim the use of home as office allowance if you work at home for more than 25 hours per week;
- You still need to make a separate claim for business use of your telephone and internet (for which you must keep receipts);
- Whilst this is a super simple method of claiming, you should check whether claiming for actual costs is more beneficial to you.
3. How to Claim Actual Costs for Working from Home
Depending on your business, the flat rate method may not be the most generous method of calculating your use of home allowance against your taxes. Your second option, which may be more tax-efficient, is to claim a percentage of your actual household bills as an allowable business expense.
When working out your claim for using your home as office, you’ll want to consider the following household bills in your calculation:
- Mortgage interest
- Council tax
3.1 How to Calculate Your Actual Use of Home Allowance
Once you have all your actual costs you’ll need to work out the portion to claim on your taxes. Here are the steps you need to follow:
- Count up the number of rooms in your house or apartment;
- Divide the total costs of the bills by each room (either equally or by floor space);
- Estimate how much time you spend working in each room as a percentage;
- Multiply this percentage by the total cost for each room to work out your claim for business use.
Eddie is a sole trader and works from home. His apartment has a bedroom, bathroom, kitchen and living room. His electricity bill for the year is £850 therefore his claim for working from home as self-employed is:
- Total number of rooms = 4
- The total cost of electricity in each room £850/4 = £212.50
- Eddie spends 70% of his time in his living room working and 10% of his time in his bedroom working.
- Eddie can, therefore, claim an allowable amount for electricity on his tax return as follows:
Living room 70% x 212.50 = £148.75
Bedroom 10% x £212.50 = £21.25
Total = £170
Claiming for use home using actual expenses can be more tax-efficient for some just make sure that you:
- Keep your utility bills to support your claim;
- Apportion the cost of bills according to floor space of each room, rather than equally (as in step 2 in our example above) if it makes more sense;
- Don’t dedicate a room in your home to your office space – dual-use is essential otherwise you may risk being charged capital gains tax when you sell your home or getting a bill for business rates;
- Check your mortgage, tenancy agreement or lease because there may be clauses preventing you from using your home as an office.
Whether you choose the flat-rate method or actual costs method to claim for your home office, don’t forget you’ll need to claim for additional costs against your self-employed taxes such as:
- Mobile phone
- Shelving and storage
4. How to Claim Your Home Office Allowance on Your Tax Return
Whichever method you choose, you’ll need to claim your use of home as office allowance in the self-employment section of your tax return. If your business turnover is less than £85,000 for 2021/2022 you’ll have the option to fill in the simplified version of this part of the tax return so only need to enter your total expenses. You’ll need to include your home office claim in the figure you enter alongside your other allowable business expenses.
If your business turnover is more than £85,000 you’ll need to enter a breakdown of your expenses in the boxes set out by HMRC and you’ll need to include your working from home claim in box 21 – Rent, rates, power and insurance costs.
Whatever your business turnover you should keep a note of what you are claiming for and how you worked it out as part of your business records, in case of an HMRC investigation and they ask for evidence of what you are claiming for to check you’ve paid the right amount of self-employed tax.
When it comes to claiming expenses, always use your judgement when it comes to deciding what you deduct against your taxes. Incorrect claims can result in penalties. And, as always, if you aren’t sure, seeks the advice of a professional.