Claiming home office expenses – SOLE TRADERS
If you are self-employed and work from your home, you can claim for a wide range of expenses against your income tax bill. However, you have to be careful to only apportion costs which have been genuinely incurred in the running of your business.
As the sole trader you can claim a proportion of almost all household expenses. However, there are two golden rules for claiming home office costs as an expense. Firstly, you must run your business from home, not just sort your business post at home while work at clients’ premises only. Secondly, the cost that you claim for has to be genuinely incurred in the course of running your business.
What can you claim for?
Some of the most common household expenses you can claim the proportion of include:
- Mortgage interest (you cannot claim for the capital repayment element of the mortgage)
- Council Tax
- Home insurance (if at also covers your business)
- Repairs and maintenance
- Cleaning costs
For more details about the specific deductions for the use of home by the self-employed you can read HMRC BIM47820.
How to work out the proportion of household expenses that you can claim for?
When working out how much of your household expenditure could be fairly reclaimed for business use, HMRC states that you can use any reasonable method to calculate the total amount of your home working costs. It is normally appropriate to apportion these expenses by area and time.
Here is a straightforward step by step method used by NB Accounting Services:
- Count the number of rooms in the house (for example – 5 rooms)
- How many of these rooms do you use for your business? (1 – office, 2 – living room).
- How long do you use these rooms each day for work (percentage)? (Office – 90%, living room – 5%)
- Divide each bill by the number of rooms in your house (e.g. £500 annual gas bill, divided by 5 rooms = £100 per room)
- Multiply the bill’s room cost by the percentage of the day that room is used for business purposes (office = 90% x £100, living room = 5% x £100)
- Therefore, for the annual gas bill, your total claim using this method would be £90 (for the office) + £5 (for the living room) = £95.
- Repeat these step for each household bill you want to claim against.
HMRC has provided several examples of how to apportion household expenses to your business. You can find them here.
Alternatively, in order to avoid complicated apportionment you can claim a simplified USE OF HOME FLAT RATE based on hours you work every month. You can use these simplified expenses only if you work for 25 hours or more a month from home.
|Hours of business use per month||Flat rate per month|
|25 to 50||£10|
|51 to 100||£18|
|101 and more||£26|
Example. During the tax year you worked 60 hours from home for 10 months and 30 hours during 2 particular months:
10 months x £18 = £180
2 months x £10 = £20
Total you can claim = £200
Additionally, the flat rate does not include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs. You can read about this and other allowable expenses for sole traders here.
Note. Different home office expenses rules apply to limited company’s directors. You can find out more here.