If you’re self-employed
The deduction available for home-office expenses incurred for self-employed taxpayers, including partners, is similar for both US and UK tax purposes. You could deduct a proportion of a wide range of expenses you foot the bill for when running a home-office, including things like property taxes, mortgage interest, rent, utilities, insurance, maintenance and repairs. Taxpayers who own their home can also claim a deduction for depreciation for US tax purposes.
The allowable deduction is generally based on the proportion of your home that’s used exclusively and regularly for business purposes. You should maintain records of all expenses claimed, plus clear and accurate calculations for the business proportion of those expenses, as the IRS or HMRC could request them as part of an enquiry.
Alternatively, the IRS and HMRC both offer other simplified methods of calculating the allowable deduction, greatly reducing the administrative burden. For example, the IRS allows a flat deduction of $5 per square foot for the part of the home used for business purposes, up to a maximum of $1,500 per year.
HMRC allows a deduction of a flat rate amount for utilities based on the average amount of hours spent working at home per month as follows:
- 25–50 - £10
- 51–100 - £18
- 101+ - £26
Claiming HMRC’s flat rate deduction for utilities doesn’t stop you from claiming a separate proportionate business use deduction for fixed costs such as council tax, mortgage interest, rent, and insurance.
It’s also important for self-employed taxpayers who are claiming a deduction for home-office expenses incurred while working at home, to consider other taxes besides income tax, including: