If you are self employed and working from home, then you can claim for the use of office as an allowance against your taxes.
You can claim either using:
- the simplified expenses flat rate method or;
- the actual costs of your household bills.
Simplified Expenses Method for Claiming Use of Home
If you are self employed and working from home for at least 25 hours per month, then you can claim a flat rate allowance on your taxes.
The amount you can claim depends on how many hours you use your home for work.
The working from home flat rate allowance for the 2020/21 tax year 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 use this method 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.
Claiming for Actual Use of Home Costs on Your Taxes
The flat rate method is not really the most generous of amounts depending on your trade.
If you are self-employed and working from home it may work out more tax efficient to claim a percentage of your actual household bills as a 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
How to Calculate Your Claim
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 equally by each room.
- 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.
Alex is a sole trader and works from home as a self-employed consultant from his apartment which has a bedroom, bathroom, kitchen and living room.
His electricity bill for the year is £850 therefore his claim for his home office is:
- Total number of rooms = 4
- The total cost of electricity in each room £850/4 = £212.50
- Alex spends 70% of his time in his living room working and 10% of his time in his bedroom working.
- Alex 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;
- Don’t forget to make a separate claim for business use of your telephone and internet (for which you must keep receipts).
- 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 to how you use your home office;
- 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.
The easiest way to claim for use of home if you are self-employed is to use the simplified expenses method – you don’t need receipts and it’s easy to work out once a year when you fill in your tax return.
Don’t forget whether you choose a flat rate or for the actual cost of your bills, you’ll also be able to claim for additional office costs on your taxes as well such as:
- Mobile phone
- Shelving and storage