Working from home expenses
Who’d want to work from an office anyway? The torturous drive in, business rates through the roof, and a whole lot of associated expenses. Many of Britain’s self-employed are now foregoing the hell that is running an office and choosing to work from home. But what working from home expenses can you claim back?
Probably not as much as you think but it’s always worth saving as much on tax as you possibly can. Here’s Burton Beavan’s guide to working from home expenses.
Working from home expenses – running expenses and bills
The most frequently occurring question we get from clients about working from home is how much they’re able to claim on their mortgage.
You are able to claim against the mortgage interest but not the mortgage principal. Mortgage payments are worked out on a principal called amortisation – basically, you pay more interest at the start of your mortgage than the end. You can see your own amortisation schedule by using this calculator.
Using an example of a £300,000 25-year mortgage at 2.5%, your first mortgage payment of £1,345.85 comprises a £625 interest payment and a £720.85 principal payment. On your last (and 300th) mortgage payment, the interest accounts for just £2.80 and the principal £1,343.05.
So you can claim more money back against your mortgage when you’ve just moved in than at any other time.
You can also claim back against your rent, council tax, and household insurance.
Working from home expenses – computer equipment
Calculating the deductions you can make on computer equipment is a bit more difficult.
If you have bought a computer and you use it for both business and personal reasons, you can claim back the entire cost of the computer. However, HMRC will view it as a taxable benefit in kind meaning you will pay personal tax on the cost of the computer (and your company National Insurance Employers’ Contributions if you’re the director of a limited company).
Purchases costing less than £500 will go in your revenue column – you can claim it back. Anything over £500 will be classed as capital expenditure. However, each business has an annual investment allowance of £200,000 a year meaning that, unless you have spent more than £200,000 on capital investments, you can deduct the entire cost of the computer against tax.
Working from home expenses – comms
There’s a simple rule of thumb here.
If your broadband, mobile, or landline is in the name of the business and the business pays the bills, you can claim the entire sum back.
If these accounts are in your personal name and you pay the bills, you have to keep evidence to show the level of usage for business and personal reasons and only claim back on the percentage of total use for business.
Working from home expenses – case study
So far, so good. There’s a lot you can claim back on but how do you work out an actual figure?
Let’s say your home has 10 rooms including a living room, dining room, four bedrooms, and a designated office space. Because only one of your ten rooms is for business use, you can only claim back one tenth of the allowable costs to reduce your tax bill.
Here’s an example:
|Bill||Original cost||Number of rooms||Deductible as expenses|
|Landline rental (shared with household)||£20||10||£0|
|Landline rental (separate second line)||£20||10||£2|
|Landline calls (shared with household)||All business-related calls||10||All business-related calls|
|Landline calls (separate second line)||All business-related calls||10||All business-related calls|
|Broadband (connected to single line)||%age of bill used for business||10||%age of bill used for business|
|Broadband (connected to business line)||£25||10||£25|
Then there’s a further factor to consider – the number of hours you work from home.
If you work 40 hours a week from home and your activity generates revenue, you’ll be able to claim all of the expenses you’ve just worked out back.
However, if you only work 10 hours a week from home, you’ll need to take the figure you’ve worked out and divide it by 4 to get 25%. For example, working 40 hours from home in the above example would mean that you can claim £70 back against your mortgage interest whereas 10 hours would reduce that to £17.50.
Working from home expenses – business insurance
A lot of business owners working from home ask us if it’s worthwhile getting business insurance if they work from home.
In one sense, it’s good – it will be difficult for HMRC to claim that you don’t work from home.
In another sense, it’s bad. The amount of insurance you will pay may wipe out the savings you make by claiming back your expenses.
Working from home expenses – HMRC’s flat rate scheme
HMRC offer a flat rate scheme but it’s not particularly generous.
If you work 101 hours or more at home during a month, you can claim £26 against your profitability. 51 to 100 hours will give you a reduction of £18, 25 to 50 hours £10, and 0 to 24 hours £2.
If you’re a company director working from home, you can claim £4 per week back.
Working from home expenses – get in touch
If you would like to take a structured and methodical approach to taking advantage of all working from home expenses tax deductions, speak to the Burton Beavan team today on 01606 333 900 or email firstname.lastname@example.org.