If you’re self-employed
When working from home, you can claim tax relief for business expenses as long as they’re ‘wholly and exclusively for the purpose of the business’. There are three ways of claiming relief:
1. Use HMRCs flat rate deduction based on the number of hours worked per month.
There is no need to provide any records. The relief is as follows:
- 25 -50 hours a month - £10
- 51 -100 hours a month - £18
- 101 hours or more a month - £26
HMRC’s guidance states that telephone and broadband costs do not relate to the home itself and can therefore be claimed (to the extent they relate to business use) in addition to the flat rate expenses.
2. Claim relief for the higher amount, if your actual costs of working from home exceed HMRC’s flat rates and you can demonstrate that these have been calculated on a ‘fair and reasonable’ basis.
You can claim a proportion of the following costs (not all of which are available to employees):
- Mortgage interest (not capital repayments) or rent
- Council tax
- Light and heat
- Telephone line rental/broadband costs
- Household insurance
- Household cleaning costs
- Household repairs
How do you calculate the expenses?
You need to calculate a proportion of household expenses based on the number of rooms in which you work, compared to the number of rooms in the house. You must then calculate on a fair and reasonable basis, the business use of that particular room per week. This can be done in a number of ways and will depend on your personal circumstances; a common method used is to calculate the business use of the fixed costs based on total hours in the week, and variable costs based on the total use of the room.
As an example, to work out the annual allowable cost of working in one room out of four, seven hours a day, five days of the week (35 hours), with another two hours a day, seven days of the week for personal use (14 hours):
Total hours used in the week = 49 hours (35 hours + 14 hours) *
Total hours available in the week = 168 hours (24 hours x 7 days) **
a) Multiply variable expenses by 1/4 to calculate the cost per room
b) Multiply result in a) by 35/49 for the variable costs (business hours over total hours used) *
c) Multiply fixed expenses by 1/4 to calculate the cost per room
d) Then multiply result in c) by 35/168 for the fixed costs (business hours over total hours available in the week) **
e) Add the two resulting figures in b) and d) together to calculate the total deductible expenses
3. If your total business expenses are less than £1,000
If your total business expenses, including your home-working expenses, are less than £1,000, it will be more beneficial to claim for the trading allowance of £1,000 to be offset against your business income.
Where the trading allowance is claimed, no further tax relief is available in that year for any business expenses.