It is common for small business owners to base their businesses at their homes. Because of this, there are two ways you can calculate your deductible expenses for using your home as your office, using a simplified flat rate deduction basis, or by proportioning actual expenses.
Some of the costs you can claim are your heating, electricity, water, and rent or mortgage payments.
It is vital that you keep evidence of amounts paid, and record how you decide the proportions of business use vs personal use.
HMRC has guidance on what can be claimed for the use of the home as an office here.
There are no hard and fast rules when it comes to using your home as an office. What is ‘reasonable’ can be influenced by:
- The size of your office in relation to your whole home
- The length of time you spend working from home
- The sort of equipment you use – are you likely to use ‘above average’ power consumption during working house?
- Whether the room is exclusively for business use or used for both business and personal use. Just note that if the room is used exclusively for business this could reduce Capital Gains Tax private residence exemption when the property is sold, so it may be beneficial to use the room for both personal and business use.
- The number of other people living at the property
Simplified flat rate deduction basis (2013/14 onwards)
For working from home, here are the rates:
- £10 a month for 25 – 50 hours working from home
- £18 a month for 50 – 100 hours working from home
- £26 a month for over 100 hours working from home
Where business premises, such as a pub or hotel, are also used as domestic accommodation for the business owner, the adjustments are:
- For 1 occupant £350 a month
- For 2 occupants £500 a month
- For 3 or more occupants £650 a month
The flat rate covers all household goods and services, food, drink, and utility bills, but not mortgage interest, rent, or council tax. You can read more about this on the government website here. https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home
Some businesses, particularly larger ones, may wish to prefer to make a private use adjustment based on the proportion of actual costs when preparing figures for tax purposes.
