Tax Relief When Working From Home

 
 

Venturing into the business world on your own is one of those steps in life that brings with it emotions shrouded in ambivalence.  You are left feeling both excited and anxious as you work your way through all the various steps.

According to the Office of National Statistics report released in February this year, there has been an increase in the number of people working from home between 2008, the start of the downturn, and 2012. We now make up 14% of people in the labour force or 1 in 6.

For some home workers whether employed or self-employed, claiming for home working expenses remains a bit of a grey area, unsure of what you can claim for and when, yet it is worth looking into this if it means that you can claim some money back for using your home space as an office. 

If this is you, do read on and see which home expenditures you are allowed to claim for then speak to your accountant about it if need be.  It is important to note here that there is a difference in what you can claim for depending on your status i.e. if you are an employee home worker or if you are self-employed.

The first thing to understand is that your expenses fall into two categories, fixed costs and running costs.

If you are self-employedthere are certain costs you can claim and HMRC (our modern day tax collectors) allow a flat rate of £4 per week.  If you feel that your claim is currently higher than this then you would need to let them know and be able to show them why this is so.   The allowable costs that you can claim in your accounts are those that are incurred entirely and solely for the purpose of your business. 

Fixed costs relate to those household expenses that are incurred whether you run your business from home or not and these include:

  • Council Tax

  • Rent

  • Mortgage interest,

  • Water rates

  • Insurance

  • General repairs

As a self-employed worker, If you find that you use part of your home solely for business and for a specific period, the living room for instance between 9:30 – 5:30, then this means that part of the costs incurred during this time and for this space is allowable as during this specified time, your living room was an office space.  So simply put, you can claim part of the fixed costs that relate to the space used and for the length of time it’s occupied for business.

Running costs on the other hand, refer to those expenses where the total bill may vary from time to time depending on the amount of business use.  These include:

  • Cleaning

  • Heating

  • Light

  • Metered water

If, let’s say, you use one small room in your home as an office and this room represents 5% of your home’s floor area, and say your electricity bill for heating and lighting is £300, then your claim will be £15 which is 5% of the total.

As an employee working from home, the only claims you can make are those that are incurred by working from your house e.g. the increase in energy and water where metered, as well as any telephone calls made solely for the purpose of your employment.  You cannot however, claim for line rental nor part of your mortgage as a self-employed person would, as these are considered fixed costs, i.e. those that you would have had to pay whether or not you work from home. 

If for some reason you haven’t explored what options you have in terms of tax relief as a self-employed worker, please do speak with your accountant about it or go to the HMRC website page on tax relief for household expenses when working from home - http://www.hmrc.gov.uk/incometax/relief-household.htm.  It will give you information on other aspects including how much relief you can get as well as tell you if you are eligible or not.

If you are an employee or director working from home and would like to find out more, do visit this site - http://www.hmrc.gov.uk/incometax/how-to-get.htm.  There you will find additional information including how to go about getting allowances and reliefs.