Please bear in mind that the advice in this article is only relevant to the self employed – things are a little more complicated for limited companies and we discuss this in another article here
Most people are aware that you can claim for some costs if you work from home. There are two ways in which you can calculate what you can claim.
Option 1 – Simplified Method
If you want to keep things simple, you can just total up the number of hours you spend working from home each month and use the HMRC “simplified expenses” rates for sole traders.
The table below shows the amount you can claim, depending on how many hours you work from home. This a flat rate monthly charge. You do not need receipts or complex calculations to make a claim using this method.
|Hours per Month||Rate per month|
|25 – 50||£10|
|51 – 100||£18|
|101 or more||£26|
Remember, that the hours are per month. Even if you work from home for over 100 hours per month, the most that you can claim under this “simplified method” is £312 per year.
Option 2 – Proportion of Costs Method
As an alternative to using simplified expenses, HMRC allows you to claim the proportion of your costs of your home, that relate to your business.
Firstly work out what your actual running costs of your home are. If you own a property this can include mortgage interest but not capital repayments. If you rent then it is simply the rental charge. Other costs which you need to capture include gas, electricity, insurance, service charges, cleaning and council tax.
You then need to work out what proportion of these costs would be fair to allocate to your business. The simple way of doing this is to firstly work out how many rooms you have in your house excluding bathrooms, kitchens and hallways. You then need to work out what % of the time you use one of the rooms for business use.
Assuming you use one of your rooms as an office and 50% of the time that it is in use it is used for your self employed business. Let’s then assume that in total you have 5 rooms excluding bathrooms, hallways and kitchens.
If your total running costs of your house per year are £15,000 it would therefore be justifiable to claim £1,500 per year – this is worked out by taking the total costs of £15,000, dividing this between the 5 rooms to give £3,000 and then only claiming 50% of this as that is the proportion of time that room is used for business.
You shouldn’t use your office room entirely for business use – keep at least a small element of the room for personal use as this protects you from any potential capital gains tax issues.
Comparison of Options and Tax Savings
Assumes no other taxable Income other than self-employment
|Use of Home||-216||-1500|
|Tax @ 20%||3,800||3,757||3,500|
|Class 4 NIC @ 9%||1,965||1,955||1840|
|Class 2 NIC||148||148||148|
|Total Tax & NIC||5,913||5,860||5,488|
New rules around property interest relief for higher tax earners came in from April 2017 so if your earnings are above the basic tax band you will have to adjust your mortgage interest in your ‘use of home as office’ calculation accordingly. More info can be found on these changes here