Home Office Tax Deductions

One of the most significant benefits you can avail of being a self-employed person is working from home. This new normal is especially suitable for those people who don’t prefer working in a 9 to 5 job role or having parents with disabilities or children at home to take care of.

But now after the coronavirus pandemic, work from home is a new normal even for a person working as an employee in a 9 to 5 job. In this blog, we will discuss: Who can claim a relief from home office expenses, rules for the home office to be considered tax-deductible, home office expenses you are allowed to write-off and the methods of calculating the use of home as an office tax deduction.

• Who is allowed to tax-deduct a room as a home office?
• Rules for the home office to be considered tax-deductible
• Home office expenses – What I am allowed to write off?
• How to calculate the use of home as an office tax deduction?

• Simplified business expenses
• Actual method

Who is allowed to tax-deduct a room as a home office?

HMRC doesn’t allow every professional to claim relief for a home office or work equipment’s to reduce their taxes. It mainly depends upon whether you’re employed or self-employed. As per the rules stated by HMRC, what can be tax deducted and what can’t vary for sole traders and limited companies?

Usually, only the self-employed individuals or limited companies will be able to claim back some of their home office expenses. In contrast, employees are only provided with this work from home option and able to claim back expenses for their home office at year-end, if it is mentioned explicitly in the terms and conditions of their employment contract. You’ll be considered as a self-employed person only if you are running a small business or working for yourself, which includes freelancing, providing professional services to end-user clients as an independent contractor, engaged as a business partner or working part-time yourself.

Also See: List Of Business Expenses You Can Claim As A Limited Company

What to Consider for Use of Home as Office Allowance 2024/25

For the 2024/25 tax year, claiming the use of home as office allowance involves several considerations. If you operate a limited company, you can include home office expenses as part of your business costs, which HMRC terms the "use of home office allowance". This allows limited company owners to claim tax relief for working from home through their business. Self-employed individuals can claim this relief on their tax return, and employees whose employers don’t cover working from home expenses can also claim the use of home allowance on their tax return.

Key points to remember when claiming for using your home as an office:

• Self-employed individuals can save on basic or higher rate tax and national insurance.

• Limited companies can save on Corporation Tax when claiming for home office use.

Who Can Claim Working from Home Tax Relief

You can claim tax relief for working from home if you meet specific conditions set by HMRC. You qualify if you have to work from home because:

• Your work requires you to live far from your office.

• You or your employer doesn’t have a business office.

• Your employer hasn’t already paid your expenses, and you have additional household costs as a result.

• Your employer’s premises lack the necessary facilities for you to do your job.

• Your job requires unreasonable daily travel to and from your employer’s premises.

• Government restrictions require you to work from home.

Example Scenario:

Sarah’s employer does not have an office, so she must work from home to perform her duties. She incurs additional electricity costs to power her computer and other equipment for her work responsibilities. Since her employer does not provide an office, Sarah is eligible to claim tax relief.

Rules for the home office to be considered tax-deductible

If you are having a space equipped with a desk, it doesn’t mean that you will qualify for tax relief automatically. There are specific requirements which a professional need to meet to claim back expenses for working from home –

1. You must be using your home office as a Principal place of business. You may not be able to claim the expenses if you are rarely using it for some paperwork filling and mostly work away from your home office.

2. Make sure that you must use your home office regularly and solely for your business purpose. If you are using your dining table in mornings or evenings for conducting office work, it doesn’t mean that you are eligible for claiming a tax deduction. To qualify, you must have used this desk area exclusively for business work. If you are meeting your clients in a separate room regularly, it will be considered suitable as a write-off.

3. Separate structures, facilities related to storage and daycare can qualify for claiming tax relief only if you are using it for business purposes.

Home office expenses – What am I allowed to write-off?

To write-off home office cost, you must understand which types of expenses you can deduct from your taxes. There are two types of costs which you can deduct from your taxes –

1. Fixed cost

   - Rent, mortgage interest, Insurance (unless you have separate business insuranceto deduct the full cost), Council tax, Repairs and Maintenance.

2. Running costs

   - Heating, lighting and electricity, telephone, internet and mobile phone bills, water and sewerage, cleaning etc.

How to Claim Tax Relief for Working from Home

Claiming Online: Visit the official government website to apply for tax relief on work-related expenses. Answer the required questions, log in using your Government Gateway ID (or create one if you don’t have one), enter the start date, and submit your claim.

Claiming Through Self-Assessment: If your work-from-home expenses exceed £2,500 in any tax year, you must claim them through a Self Assessment tax return.

How is Working from Home Tax Relief Paid?

1. Tax Rebate for Previous Tax Years
   If you’re eligible for tax relief for past tax years, HMRC will typically issue a rebate via cheque. This means you’ll receive a refund for any excess tax paid due to your working-from-home expenses.

2. Tax Relief for the 2024/25 Tax Year
   For the current tax year, HMRC will adjust your tax code to reflect the relief. This means you’ll pay less tax on your wages, as the tax relief is automatically incorporated into your tax code.

Understanding Tax Deductible Expenses for Home Working in the UK

In recent years, the rise of remote work has led many individuals to explore tax deductible expenses in the UK associated with their home office setup. If you’re working from home, it’s essential to understand how you can benefit from tax relief and what qualifies as a tax deductible expense.

What Are Tax Deductible Expenses?

Tax deductible expenses are costs that you can subtract from your total income to reduce the amount of tax you owe. For those working from home, there are specific expenses that can be claimed as deductions.

Common Tax Deductible Expenses for Home Workers

1. Utility Bills: A portion of your electricity, heating, and water bills can be claimed if you use part of your home for work.

2. Internet and Phone Costs: If you use your internet or phone for work purposes, you may claim a proportion of these costs.

3. Office Supplies: Items such as stationery, printers, and other office equipment can be included in your deductions.

4. Rent or Mortgage Interest: If you’re using a room in your home exclusively for work, you may be able to claim a portion of your rent or mortgage interest as a tax deductible expense.

The Use of Home as Office

When considering the use of home as office, it’s crucial to determine how much of your home is used for work purposes. The HM Revenue and Customs (HMRC) has guidelines on how to calculate this effectively.

How to calculate the use of home as an office tax deduction?

There are two ways by which you can easily calculate the use of your home as an office tax deduction –

1. Simplified business expenses

   - It is an easy and straight forward method of calculating the use of home as an office tax deduction. In this method, you need to calculate how many hours you spend each week working from home and then use the applicable flat rate to make a deduction from your taxes. Make sure you must not include telephone, mobile and internet charges as it comes under running costs. These expenses should be calculated separately.

   Who can use simplified business expenses?

   You can use simplified business expenses in the following cases –

   1. If you’re a sole-trader
   2. If you’re engaged in a partnership and all the other partners are individuals.
   3. If you’re not a VAT registered dealer
   4. If you’re working from home for more than 25 hours monthly.
   Note– If your turnover is more than £85000 per year, you must register for VAT.

   HMRC rates for Home office

   HMRC current simplified business expenses rates are as follows –

   Hours of business use per month	Flat rate per month
   25 to 50	£10
   51 to 100	£18
   101 and up	£26

   How to Calculate Simplified business expenses?

   1. Calculate how many hours of work from home you have done each month.

   2. Use HMRC’s simplified expenses rates table to find the applicable flat-rate.

   3. Multiply your flat rate with the number of months you worked from home.

   4. Divide your bill by the number of working hours to calculate the business proportion of telephone and internet costs.

   Example - Suppose you worked for 120 hours a month for 9 months whereas, for the remaining 3 months (October, November and December), you only worked for 30 hours a month.

   Hours of business use per month is 120 hours for 9 months which falls in the category of 101 and up (as per the table specified above) for which the flat rate is £26. However, for October, November and December, it is 30 hours a month, which falls in the category of 25 to 50 for which the flat rate is £10.

   Hence, by way of simplified business expenses,the calculation will be (26 multiply by 9) + (10 multiply by 3) = you’d deduct £264

   In a year, you worked 120 hours per month for 9 months and 30 hours per month for 3 months, i.e. (120 multiply by 9) + (30 multiply by 3) = 1170 hours

   There are 8760 hours in a normal year (24 hours multiplied by 365). Then, you have to divide 1170 by 8760 and multiply it by 100 to ascertain the percentage of the deduction for your hourly broadband bill, i.e. 13%.

   If you are paying £30 per month in your phone and internet package, then the calculation will be (£30 multiply by 12)*13% = £47

   Also See: Limited Company Expenses You Can Claim When Working From Home

2. Actual method

   -

   The second method to calculate the use of home as an office tax deduction is an Actual method. The actual method is used to calculate the business proportion of your home running costs such as utility bills, cleaning etc. It is not an easy and a straight forward method like simplified business expenses and requires more efforts. There is no specified formula with HMRC to calculate home office costs. Therefore, to simplify it, you need to divide your business and private costs reasonably.

   
   

   The most common method used for calculating home office costs is to divide our total expenses by the number of rooms you have utilised for business use. You must keep all your expense records with yourself as it helps you in easily calculating your home office costs. HMRC may also ask you for the records to make sure that the claim you have made is accurate.

   How to calculate actual home office costs?

   1. Add all your yearly expenses starting from 6th April to 5th April of the next year.

   2. Divide your total expenses by the number of rooms you have utilised for business use. Kindly don’t include Kitchen, Bathrooms and Hallways.

   3. Divide the number of working hours by the total number of hours in the year and multiply it up by 100 to calculate the percentage of your business use.

   4. Multiply the result of step-2 with the percentage outcome in step-3.

   Example - Suppose you have worked 120 hours a month for 9 months and 30 hours a month for 3 months. You total yearly expenses (including both fixed and running costs) are £15000.

   To calculate home office tax deduction, firstly divide £15000 by the rooms you have utilised for business purposes. Suppose you have used 3 rooms, then your expenses will be £5000 per room (£15000/3).

   You’ve worked for 1170 hours, i.e. (120 multiply by 9) + (30 multiply by 3). Hence, the business proportion of expenses is 13% (1170/8760*100).

   The total amount of deduction from your taxes by using the home as an office = 13% of £5000, i.e. £650

“This article was correct at the date of publication. It is intended for general purposes only and does not constitute legal or professional advice. Independent professional advice should be sought before proceeding with any transaction”

In case you are having any query or want specialist advice on "Home office tax deductions", kindly call us on 03330886686, or you can also e-mail us at enquiry@dnsaccountants.co.uk

Also See: Will HMRC Accept Scanned Receipts for Business Expenses?

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