Self Employed: Working from Home Expenses
Working From Home Tax Deductions: Choosing Between Actual Costs and HMRC’s Flat Rate
One advantage to being self-employed for many is the flexibility offered by working from home. A question we are often asked is if you work from home, what costs can you claim for in your self assessment tax return. Deciding how to claim these expenses can be confusing, especially when you have two main options to choose from: claiming a proportion of actual costs or using HMRC’s flat rate simplified expenses. Here’s a breakdown of each method to help you choose the best fit for your situation.
Option 1: Claiming Actual Costs
Claiming a proportion of your actual costs can be a great way to ensure you’re accurately capturing the expenses associated with running a business from your home. This method lets you calculate the exact amount spent on things like electricity, heating, and broadband that directly relate to your work. This method has increased in popularity since the surge in the price of energy bills.
How it works:
Calculate Your Work Space: First, measure the area of your home that you use for business. If you have a dedicated office space that makes up 10% of your home’s area, you could use this percentage to determine how much of your household bills you can claim.
Track Time Spent: Next, estimate how much time you spend working from home. For example, if you use that space for work 50% of the time, you’d apply this additional factor to your eligible expenses.
Apply Percentages: Multiply the total household expense (say, your electric bill) by both the percentage of the workspace and time used. This will give you the portion of each bill that’s tax-deductible.
What you can claim:
Utility Bills: heating, electricity, water
Internet and Phone: If used for business, you can claim a portion of these expenses
Mortgage Interest or Rent: Remember, only interest payments on mortgages are eligible
Insurance and Repairs: Business-related repairs and a portion of home insurance can be included
The main benefit of this approach is that it can result in more significant deductions than the flat rate, especially if you have high utility or internet costs. However, it does require detailed record-keeping, so it’s ideal for those who are organised and don’t mind a bit of extra admin.
Option 2: HMRC’s Flat Rate Simplified Expenses
The flat rate option, or “simplified expenses,” is designed for self-employed people who don’t want the hassle of tracking every penny spent on household bills. Instead, HMRC provides a straightforward rate based on the number of hours you work from home per month.
The rates are as follows:
25-50 hours/month: £10 per month
51-100 hours/month: £18 per month
101+ hours/month: £26 per month
With this method, you don’t have to calculate proportions of individual bills or keep detailed receipts, making it a great choice if you’d like a quick, easy way to claim work-from-home expenses.
The downside is that the flat rate may not cover as much as actual costs if you have substantial utility bills or internet expenses. But for those with smaller spaces or only a few hours of work from home each week, it’s a time-saving way to make sure you’re still benefiting from your business expenses.
Choosing the Right Method for You
So, which option should you go for? If your work-from-home setup involves a lot of hours and a dedicated office space, claiming actual costs could maximise your tax savings. On the other hand, if you’re looking for simplicity and don’t want the hassle of calculations, HMRC’s flat rate might be your method of choice.
Remember, there’s no one-size-fits-all answer here. Think about how much time you’re willing to spend on bookkeeping, and consider which method feels manageable. Both approaches are designed to help self-employed people like you get the most out of your self assessment tax return.
If you would like to discuss this further, you can book a discovery call with us online: https://calendly.com/sphereaccountants/30min or contact us at: hello@sphereaccountants.co.uk