If you work from home, whether it be for services or administration you may be eligible to claim a tax deduction. The rules for claiming home office expenses vary depending on whether you are self-employed, a sole trader or business partner, or an employee. Under HMRC’s “simplified expenses” regime, self-employed individuals can claim a fixed monthly allowance based on the number of hours they use their home for work. Employees may be eligible for a weekly or monthly allowance from their employer or can claim it themselves on their tax return. If you cannot use the standard allowances, you can also claim the actual costs of running your home office. Make sure to review the specific guidelines from HMRC to determine what expenses you can and cannot claim.
Simplified Expenses for Sole Traders and Partners
If you work from home as a sole trader or business partner, you may be eligible to claim certain expenses as tax deductions. Under the HMRC’s simplified expenses regime, you can claim a monthly allowance based on the number of hours you work from home. The allowances are as follows:
- £10 a month if you use your home between 25 and 50 hours a month
- £18 a month if you use your home between 51 and 100 hours a month
- £26 a month if you use your home more than 101 hours a month
Even if you don’t work 25 hours a month at home, you can still make a claim based on the actual or estimated costs of working from home. While HMRC may ask you to justify your calculation, it is unlikely to cause any problems if the claim is a fixed £120 a year. Additionally, you can claim a business proportion of your home phone/internet expenses on top of these amounts.
Claiming Actual Costs for Sole Traders and Partners
If the standard allowances mentioned above do not apply to your situation or you feel your claim should be higher, you have the option to claim actual costs. To do so, you need to follow these steps:
- Work out the costs of running your home, such as mortgage interest (excluding capital repayments), rent, council tax, water rates, insurance, broadband, electricity, gas, cleaning, and repairs.
- Apportion these costs based on the number of rooms (excluding kitchens, bathrooms, and halls) or the floor area. If a room is shared for both personal and business use, take this into account when apportioning the costs.
HMRC provides guidance on such claims in its internal manuals. It’s important to note that you cannot claim a proportion of rent, council tax, fixed water rates, mortgage costs, or insurance.
Voluntary Work from Home for Employees
If you are an employee who voluntarily works from home, your employer is allowed to pay you a £6 per week or £24 per month allowance. This amount was previously £4 per week before April 6th, 2020. However, if your employer does not provide this allowance, you cannot normally make any claim from HMRC for expenses yourself. The exception to this rule was made for the tax years 2019/20, 2021-22, and 2022-23 due to the COVID-19 pandemic. Employers may consider paying this allowance to staff members who regularly work from home.
Required Work from Home for Employees
If your employer requires you to work from home, the rules for claiming expenses differ slightly. Your employer is allowed to pay you the same £6 per week or £24 per month allowance as mentioned above. Alternatively, you can claim this amount from HMRC on your Self Assessment tax return. However, if you wish to claim actual expenses, there are specific criteria that need to be met:
- The requirement to work from home should arise from your Contract of Employment or being a company director with your home as the business base.
- It should not be a matter of personal choice, and there should not be other facilities, such as an employer’s office, within reasonable traveling distance.
- Substantive duties of your employment or directorship, not merely incidental ones, should take place at home.
If you meet these criteria, you can claim metered gas, electricity, and water costs associated with working from home. You can also claim the costs of business telephone calls. However, you cannot claim a proportion of rent, council tax, fixed water rates, mortgage costs, or insurance.
Expenses that can be claimed
As mentioned earlier, if you are eligible to claim actual costs for working from home, you can claim metered gas, electricity, and water expenses. These costs must be directly related to your work and should reflect the extra units used as a result of working from home. Additionally, business telephone calls can also be claimed as an expense.
Expenses that cannot be claimed
There are certain expenses that cannot be claimed when working from home, regardless of whether you are a sole trader, partner, or employee. These expenses include rent, council tax, fixed water rates, mortgage costs, and insurance. HMRC has specific guidance on what can and cannot be claimed, and it’s important to adhere to these guidelines to ensure compliance with tax law.
Effect of claiming for Office at Home Expenses
If you claim expenses for having an office at home, there are some implications to consider. Firstly, if you do not have an area specifically dedicated for business use only, you should not have any concerns regarding Capital Gains Tax or Business Rates. However, if you have clients or customers visiting your home for business purposes, it is important to check with your insurers and, if applicable, your landlord or mortgage company.
If your work from home is primarily for administrative purposes and occasional business meetings, you typically do not need planning consent. However, it’s always a good idea to check with the relevant authorities to ensure compliance with any local regulations.
Claiming for office at home expenses can provide tax benefits for individuals, but it’s crucial to consider the impact on insurance and planning consent for your specific situation.
In conclusion, working from home can have tax implications for sole traders, partners, and employees. Understanding the rules and guidelines laid out by HMRC is essential to ensure accurate claims and compliance. Whether you’re eligible for simplified expenses, claim actual costs, or receive allowances from your employer, it’s important to keep records and follow the necessary procedures to maximize your tax deductions while remaining within the bounds of the law.