“Can I claim Home Office costs and How much?”
This is one of the most commonly asked questions we get asked here at LeeP, your local Peterborough Accountants, and there are so many misconceptions are flying around. Here is what you need to know if you work from home.
There are TWO methods you can use and you can choose the method that gives you the best tax saving. The first method is:
1. The flat rate method
This simply asks you to look at how many hours a month you spend running your business at home, on average, and then include a fixed amount in your accounts for business use of home.
The amount varies with the number of hours per month you work at home, as follows:
- 25-50 hours: £10 per month
- 51-100 hours: £18 per month
- 101 hours or more: £26 per month
These monthly figures cover only costs for heat, light and power – you can still work out how much you can claim for your other costs, such as rent, council tax, and telephone and broadband (covered below).
The second method is the Actual costs method:
2. Actual costs method
If you want to claim part of the actual running costs of your home in your business accounts, then how much you can claim depends on the type of business you have and what work you actually do at home. E.G. if you’re a plumber you might spend an hour or two a week writing up your books at home, but spend the rest of your working life out on site vs. a home-based web designer, you may well do most of your time at home occasionally visit clients.
HMRC say that you need to apportion the running costs of your home on a “fair and reasonable” basis between the private element of that cost vs. the business element and this is how we recommend you do it:
i) Work out home many potential rooms you could be working out of in your home and then
ii) decide how many rooms you use for your business and also calculate how much time you actually use these rooms for business.
EG. Say there were 3 bedrooms, a living room and a dining room in your home (5 rooms) and you work from one of the bedrooms for 4 days of the week, then you would add up all the costs you could claim (see below) and take 1/5th (one out of the 5 possible rooms) and you use the room 4/7ths of the week.
What costs you can claim
Here are some of the costs you might incur to run a home, which you may then be able to claim part of in your business accounts:
You can claim a proportion of the interest only – not the capital repayment.
If you’re renting your home from a landlord, then you can claim a proportion of the rent for your business.
You can claim a proportion of your council tax cost. However, depending on how much you use your home for business, you may have to pay business rates rather than council tax.
Light and heat
You can claim the business proportion of your gas and electricity costs for lighting and heating in the room(s) you use for business. However, if you have been claiming flat rate expenses, then this is already included in these costs so make sure you don’t double-up.
Telephone and broadband
Remember that what you can claim for your telephone and broadband is not apportioned on the basis of the number of rooms in your home, but on what your actual usage of the line is.
You can claim the full cost of all your business use of the line, and a percentage of the line rental, based on how much you use it for business purposes and how much is for personal use.
If you use a lot of your home water supply for business – for example if you run a hair Salon from home – then you should apply to the water company for this to be separately charged, and you could claim the full cost.
Claiming costs of working at home is not as simple as it initially sounds. If you’re in any doubt as to what you can claim, please contact us on 01733 699033 for further guidance.