Running a business from home? Don\’t forget to claim

Running your own business can incur a number of costs, not least renting premises. But if you are a sole trader you may prefer to work from home.

It’s convenient, there’s no commute and you’re on hand if extra childcare is needed. Plus, there is the bonus of saving costs.

But did you know there are a number of working-related expenses that you can claim for if you are using your home as your office.

After all, you may not be paying rent on a town-centre location, but your general household bills will go up with the extra electricity, heating and home insurance.

You can claim for some of these expenses though, including utility bills, internet, council tax and your mortgage interest.

How do I claim?

There are two methods you can use for calculating your expenses – one is straightforward, but favours the taxman, while the other is more cost-effective for you.

Using HMRC flat rate

This is the easier method and is unlikely to face any HMRC challenges. It is calculated on the number of hours a month you work at home. So, from a minimum 25 hours up to 50 hours you can claim £10 a month. The figure rises to £18 a month for 51 to 100 hours and anything over 100 can be claimed at £26 a month.

As an example, say you work 140 hours a month for eight months of the year (£26 x 8) and 60 hours for four months (£18 x 4), you could claim £208 £72 = £280.

The flat rate does not take into account telephone/internet expense. You can claim for the portion of the bill that is related to business use.

Manual method

The second calculation involves doing some sums. First, work out how much you pay in total for the following:

  • Mortgage interest (not the full mortgage payment) or rent
  • Electricity
  • Water
  • Internet/telephone
  • Insurance
  • Council tax
  • Repairs
  • Heating

Now, count the number of ‘living space’ rooms in the house – this doesn’t include the bathroom, kitchen, utility. The next step is to calculate the number of days you use your office and the number of hours each day.

Let’s say the answers are:

  • Total household bills: £6,000
  • Number of rooms: 4 (three bedrooms and one lounge)
  • Number of days a week you work: 5
  • Number of hours a day: 8

Divide the annual cost of £6,000 by the number of rooms (6,000/4=1,500)

You use the office five days a week (1,500/7*5=1,071)

Divide 1,071 by 120 (the number of hours in five days) and multiply by 40 (the number of hours you work each week) = £357.14

The total is more than the £280 you could claim with the flat rate.

Need help?

If you are unsure what you can claim, get in touch.