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Doctor, doctor, what expenses can I claim against tax if I’m working from home?

Home working

If you’re self employed and working from home, you can deduct an element of your home running costs against the profit reported in your business accounts.

There are two potential methods for calculating your home running costs:

1. Simplified expenses – flat rate method

HM Revenue & Customs will allow you to use the flat rate method if you work for 25 hours or more per month from home. This method is based on the hours that you work from home each month and so there is no need to calculate the proportion of personal and business usage.

The fixed amount to include in your accounts for business use of home is as follows:

Hours of business

However, the flat rate does not include telephone or internet expenses. For these expenses you will need to calculate the business proportion with reference to the actual bills.

2. Cost allocation method

This method involves analysing the actual costs incurred between business and personal and will depend on the type of business that you are running.

HM Revenue & Customs state that your home running costs should be apportioned between the personal element and business element on a ‘fair and reasonable’ basis – but what does this actually mean?

One method is to calculate how many rooms in your house you use for business, and how much time you spend using these rooms for business, with reference to the total number of rooms in your house. This percentage will then be applied to your home running costs.

One step further would be to work out the size of the rooms in your house on a square metre basis, and how much time you spend using these rooms for business, with reference to the total size of your house.

For example, if there are 10 rooms in your house and one room is used for business for 50% of the time, you would multiply all eligible running costs by 5% to determine the amount you can claim for business use at home (1/10 multiplied by 50%).

However, if you use this method, you will need to ensure appropriate records are kept in order to justify the amount claimed. This can be a simple spreadsheet detailing the costs that have been included and the calculations for the above.

In the rare situation that any room in your house is used solely for business purposes all of the time, this element could be subject to Capital Gains Tax when you come to sell your house. In practice, this is rarely an issue.

Expenses that can be claimed

The following expenses might be incurred in running your home which you may be able to claim as part of the calculation above:

Fixed costs

  • Mortgage interest
  • Rent
  • Home insurance
  • Council tax

Variable costs

  • Electricity
  • Gas
  • Water
  • Repairs to any rooms used for business (no need to apportion; just multiply the cost by how much time you spend using the room)

Finally, for any equipment that you purchase to use in your business (computers, desks, filing cabinets, etc) you can claim ‘capital allowances’ and deduct some or all of the value of the item(s) from your profits before tax. However the amount of capital allowances will be restricted by any private use element as above.

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