Using your home as an office for your business – what can be claimed?
“Can I claim money back on council tax? What about rent? Home broadband? Electricity bills? etc.”
These, and others like it, are some of the most frequently asked questions we receive, so in today’s blog we answer the question ‘If I work in an office at my house, what can I claim money on, and how much can I claim?’
The structure of your business determines how much you may be able to claim – specifically whether you are self-employed (a sole trader), or acting as a limited company. The rules for limited companies are stricter than those for the self-employed. The main difference on the expenses covered is that whilst both limited companies and sole traders can claim for variable costs, only sole traders can claim for fixed costs.
So what type of expenses are we looking at?
The costs that you can claim money back on are split into two distinct groups –
1) Fixed costs; i.e. irrespective of the use of your house. This group includes things like rent, council tax, insurance, repairs, and mortgage interest payments (though not capital repayments) (Can only be claimed by self-employed)
2) Variable costs; expenses that will fluctuate depending on usage. E.g. Telephone/Broadband, electricity, and gas. (Can be claimed by both limited companies and self-employed)
How to decide amount to claim
An approximation of the amount of the bills that can be claimed is often determined by calculating the pro-rata business usage, in terms of area (what proportion of the house is used for business purposes) and time (hours of the day, and even days of the week). There are a couple of exceptions that are worth noting;
– Telephone usage – calculated from an itemised bill, assuming that a dedicated business phone line is not present.
– Insurance – If you have separate insurance covering your home business operations, then this can be claimed (100%) as a company expense, but none of your household insurance can be claimed. If you don’t have this separate cover, then a proportion of your household insurance can be claimed on a pro-rata basis.
In practise
Take a simple example. Tom is an author (self-employed) working from home. He is using a spare room as an office, and works in it every day from 9am to 3pm. The spare room comprises 15% of the area of the house. The fixed costs including insurance, council tax, mortgage interest etc. come to £7500. To calculate how much he can claim back, we work out 15% of the total (the office area), then factor in the time spent (6/24) to come to a total claim of £281.25.
The HMRC website has some further examples explaining this (BIM47825).
One thing to note is that small claims (a few pounds a week, for example, excluding phone calls) can be made without having to provide proof to back up your claim.
A further thing to note (which cannot be emphasised enough) is that without invoices/receipts supporting any claim you cannot claim very much at all (maximum of £2 per week in the case of a company director).
The difference between Limited Companies and Sole Traders