What expenses can I claim when working from home?
What most sole traders want to know is: how much can I claim back from my rent, mortgage, or bills when I work from home?
And it’s a valid question. Say you’re running a business from home — there’s no way you can do that without racking up your household bills even a little bit.
So, here’s what you can claim as self-employed, working-from-home expenses — and what you need to look out for.
What you can claim?
The good news is, if you work from home, you can claim back part of your household costs as business expenses. This includes:
- Rent or mortgage interest
- Council tax
- Lighting, heating, water, telephone, and broadband
- Property repairs.
It’s just a matter of deciding what portion of these household costs you can separate from personal use and assign to your business. Easy enough.
How you can work it out?
To work this out, you’ve got two options. You can claim either:
- A flat rate, based on the time you work from home and the number of months you work there, or
- A portion of your household costs, calculated on a usage basis. Your usage might be the space or number of rooms you use and how often you use them for business purposes, for example.
Option 1: Claim a flat rate
If you only work from home for a few hours a week or you pay a very small amount towards your rent or mortgage, a simple option is to claim a flat rate.
A flat rate is assigned to the number of hours you work from home per month — and there are 3 different rates to choose from.
This method is called Simplified Expenses and you can learn about the specifics, including what rate to apply, here.
It’s nice and simple, and it gets the job done.
But most of the time you won’t see a massive impact on your tax bill going down this route. If you’re looking to get a bit more back, an alternative option is to calculate the portion of your actual household expenses you create from working from home.
Option 2: Claiming a portion of your household expenses
This calls for a slightly longer calculation. But stay with us.
To work out what you can claim, you need to follow these steps:
Step one: Add up your household expenses e.g. rent or mortgage payments, council tax, and relevant bills.
Step two: Multiply this number by the dedicated space at home you use for work. This could be the number of rooms you use (usually one) divided by the total number of rooms in the house.
Step three: Multiply this number by the percentage of time that space is used for work. This is the amount of working time divided by the total time you use the room.
The calculation looks like this:
Rent or Mortgage payment +.Heating + Electricity + Council Tax
(Number of rooms used for self-employed work / Total number of rooms in the house)
Amount of time used for work / (Amount of time used for work + amount of time used for personal use)
And if you like a real-life example, picture this:
Joan has an extra room she uses for an office.
The extra room is one of five rooms (⅕ or 20% of the house).
90% of the time, that extra room is used as an office for her self-employed job. For the remaining 10% of the time, it’s used when guests come over.
So, Joan multiplies her total monthly household expenses by 20%, then by 90%.
If you own your home, be careful about claiming to use a room for business purposes 100% of the time. If you claim expenses by saying you use certain rooms exclusively for business, this could reduce the Capital Gains Tax Private Residence Relief you get when you want to sell your property.
Basically, when it comes to selling, any part of the property you’ve claimed you use exclusively for business won’t qualify for this relief.
How much you can claim?
The most important part of calculating the amount you want to write off as a business expense is making sure it’s reasonable.
It’s a word HMRC like to use and it simply means making sure that the way you divide your costs between personal and business use is fair. And the way to do this is to use one of the accepted methods of calculating them mentioned above.
In the few examples of HMRC Investigations we’ve seen, HMRC may throw out an entire household expense claim is they think it’s unreasonable. But, if you’re worried at all about claiming expenses, HMRC has put out a list of simple claim examples as a guide to what they’ll accept. You can read more about that here.
Why you should take the time to do it?
You have to agree, it’s a smart move. Writing off some of your rent or mortgage interest is one of the best ways to save money and lower the amount of tax you pay.
If you want a bit of help calculating your expenses, Finmo is happy to work with members to find the formula that works best for them. Or, to see the full list of expenses you could be entitled to based on your type of business, visit Find your industry’s self-employed expenses list.
Can I claim home office expenses, too?
Yes! This is another great way to save on costs and if it’s necessary for the job, then it’s definitely something you can expense. This includes stationery, software – even items you need furnish a home office, like cabinets and bookcases.
You’ll just need to be clear about whether you use any of these things for personal use at any time, and divide the cost to show this.
You can find out more about claiming expenses while working from home on HMRC’s Expenses if you’re self-employed page. Scroll down to “If you work from home”.
If you’re interested in learning more about how HMRC views expenses, check out our article Wholly and Exclusively vs. Dividing Costs.
All information, advice and examples featured here apply to sole traders only. Those operating as a limited company should seek alternative advice from trusted sources.