Use of home as office

Many small businesses are based at home.  From tax year 2013-14 onwards there is an optional, simplified flat rate deduction basis (see below), alternatively you can claim a reasonable amount for using a room or rooms at home for business purposes, based on apportioning actual expenses.

Costs might include part of the bills for heating, light, water, and rent or mortgage interest.

It is important to keep original bills or evidence of amounts paid and the basis on which the proportion has been calculated.

HMRC has set out their view on what can be claimed for use of home as an office in the on-line Business Income Manual at http://www.hmrc.gov.uk/manuals/bimmanual/BIM47800.htm

It is particularly useful to look at their examples given at  http://www.hmrc.gov.uk/manuals/bimmanual/bim47825.htm

There are no hard and fast rules. What is ‘reasonable’ is influenced by

• The size of your ‘office’ in relation to the whole property
• The length of time you spend working from home
• The sort of equipment you use – are you likely to have ‘above average’ power consumption?
• Whether you occupy a room exclusively for business or use a room for business and domestic purposes
• The number of other people living in the property might affect the proportion of private use

Note:  If you use a room in a home you own, ‘exclusively’ for work, this could reduce the Capital Gains Tax private residence exemption when the property is sold.  This is because any part of the property exclusively used for business will not qualify for Capital Gains Tax private residence relief. This problem may be avoided by ensuring there is some domestic use of the study (e.g. keeping a second TV in the study, and using it from time to time for personally).

Simplified flat rate deduction basis for 2013-14 onwards

An alternative basis, available from 2013-14 onwards, is to claim a flat rate deduction:

£10 a month for 25 hours to 50 hours working from home

£18 a month for over 50 to 100 hours

£26 a month for over 100 hours

Where business premises, such as a pub or hotel, are also used as domestic accommodation for the business owner, the adjustments are:

For one 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 and drink and utility bills, but not mortgage interest, rent, council tax or rates. (See also https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home).

Note: Some businesses, particularly larger ones, may prefer to make a private use adjustment based on a proportion of actual costs when preparing figures for tax purposes.