If you rent an office or workshop, then the figure you can put through your tax return is fairly straightforward.
However, for a lot of small businesses, renting isn’t an option for either financial or practical reasons, so you may find yourself working from home.
As your business is likely to be increasing certain household expenses, it seems unfair not to include these within your tax-deductible expenses.
As it isn’t as clear cut what is a business expense and what is a personal expense, making the calculation isn’t a simple case of popping some bills through your tax return.
In light of this, our team of London accountants have broken down everything you need to know about claiming expenses when working from home, so you can avoid any costly mistakes when it comes to filing your self assessment tax return.
HMRC have created a flat rate which you can claim for your use of home expenses. These are dependant on the number of hours you work from home.
The simplified expenses work well if you have a low impact business. For example, one that requires you working from a computer in the corner of a spare bedroom or off the kitchen table.
You can claim the additional internet costs separately and the overall impact on your light and heating bills are going to be low.
It’s worth noting the flat rate set by HMRC is on the low side, as you may expect. So, if your business has a larger impact on your household bills, you may find these simply are not high enough to cover the additional costs.
It could be that you have a room solely dedicate to your business, so the spare bedroom is now officially your workshop and no longer has a bed in it. Or maybe you provide beauty treatments of massages from home so need not only a dedicate room, but have that room well heated.
In these instances, it is worth getting out the pen and paper and doing some maths and, for peace of mind, seeking advice from a small business accountant.
In calculating your expenses, the first thing you need to do is identify how many rooms your house has as these will all be covered by your household bills. HMRC refer to “normal living spaces” so bathrooms, landings and hallways can be excluded.
If you have a garage or garden room which is also attached to your light and heating bills, then these need to be included too.
Quite often a room in your house may have a dual purpose; such as the spare bedroom, so you cannot claim 100% of the costs.
The best course of action is to be honest and think about how much time your business spends in each room.
For most it might be a nice and easy zero percent. If you have a dedicated room, then that would most likely be closer to 90-100%. However, it could be that you use one room for your business between 8 and 4 and the rest of the time other family members use it, so the business use is only 70-80%, for example.
Light and heat are the most common ones - your heating and electric bills can be included.
You can also include the interest element of your mortgage payments if you own the property, or rent plus your council tax if you’re a tenant.
If your business is included in your home insurance, then that can also be included in the calculations. Broadband and telephone costs can be calculated separately.
You should recalculate your working from home expenses every time you complete your tax return to reflect fluctuating costs and amend to any changes of business use.
Need further advice on claiming expenses and reducing your overall tax bill? Our tax experts are specialists in working with small businesses, including those with home-based offices or work arrangements.