Expense Claims While Working from Home

While it’s not an option for everyone, many businesses do have the option to work from home. There’s one immediate financial saving to this as you get to skip the commute, but it does also mean spending more money (and time) at home than you otherwise would.

As a way to offset that, there are a number of expenses that can be claimed for working from home.

So what should you know about?

Expenses Claimed for Equipping a Home Office

While everyone’s different, most of us who work from home have one designated space where the work gets done. It may not be grand enough that we’d call it a home office in normal conversation, but nonetheless, for official purposes that is how it’s treated.

(The same is true if you have a space for manufacturing physical products at home as part of your business – that would be a home workshop).

Of course it’s important that you can show this truly is a home office. You’ll need to show that you spend time there regularly while working. If the majority of your time is spent at a co-working space or at official business premises, no claims can be raised for a home office.

For a long time now, a rule of thumb for expense eligibility has been that items purchased should be “wholly, exclusively, and necessary” for business purposes in order to qualify for expenses. If you’re buying a printer with the intention that it will only be used for business purposes, that counts; if you’re buying a 3D printer to make a few things for your business and also to scratch a hobbyist itch, it doesn’t.

Of course, as with all rules of thumb, it’s not always right; there are a variety of exceptions or special circumstances which can complicate the question. We’d always recommend checking your claim with accountants before submitting it so you can be absolutely sure you’re compliant.

In addition, you can claim tax relief when buying equipment that has a business purpose.

Filing cabinets and other storage that will be used primarily for business purposes can be claimed on as office equipment; it just happens that the office you’re equipping is at home. A minor amount of personal use would be considered a ‘benefit in kind’.

Ongoing Work from Home Expenses

So far we’ve only dealt with equipping your home office. Running your home office, as with any office, incurs costs. Limited companies have two basic options for claiming ongoing expenses in this way.

Simplest is to adopt HMRC’s flat rate expenses. If you work at home for all or part of your week, you can claim tax relief on £6 per week at time of writing, on any expenditure you’re making purely for work. So you can’t claim this against rent as that is the same regardless of your work, but you could claim on increased gas and electricity costs caused by being home through working hours.

£6 per week works out to £312 annually, if you’re working every week. This makes for a very simple allowance; it’s not evidence-driven and requires no additional calculations, but can offset additional utilities costs you wouldn’t otherwise occur.

If your business is much more energy intensive (going back to the home workshop, for example) you may have a significant increase to your ongoing payments as the result of working from home.

In these circumstances, you might benefit more from an accurate calculation of your increased household expenses. This does require evidence in your submission, though; the process is as follows:

• Keep records, with evidence, of total utility costs. This includes fixed costs that are disregarded in the flat rate method like rent or mortgage payments, council tax, and internet, as well as electricity, gas, insurance, etc.
• For each room in your home (excluding hallways, porches, and bathrooms), calculate what percentage of your time spent there is business related. This might look like:
  • 15% of time spent in your living room is taken up by business, making calls
  • 95% of time spent in your home office is used for business
  • 0% of time spent in the kitchen is business related
  • 5% of time spent in your bedroom involves checking email or planning the day’s work, and is thus spent on business
• Each of your expenses should then be divided by the number of rooms (still excluding hallways, porches, and bathrooms)
• For each room, you can claim according to the percentage of time you spend working there.

As you can plainly see, this requires a lot more calculation and record-keeping. We would only recommend this method if you know your increased home expenditure is significant.

Expenses claims can be one of the most complicated aspects of tax accountancy. If you’d like more clarity on the process, why not drop us a line?