Ever since the Covid pandemic when many businesses were forced to close their physical premises and operate remotely, working from home (WFH) has become notably more common.
Research by Forbes found that as of 2023, 13% of full-time employees work from home, while 28% choose hybrid work (a combination of remote and on-site work).
It might not have become the totally ‘new normal’ some were predicting; after the pandemic, a lot of business owners were keen to get staff back in the office – and the feeling was mutual for many employees.
However, lots of business owners saw that there are benefits to adopting a remote or hybrid work model, including lower overheads and the ability to recruit talent from further afield.
Employees who choose to work from home are not allowed to claim tax relief for using their personal premises as an optional workspace. This is also the case if you have the choice to work in an office, but it is fully occupied.
However, some employees can claim tax relief for working from home, specifically those who:
- Live too far away from the company’s office to work there.
- Are employed by a business that doesn’t have a physical office at all.
Tax relief for self-employed people working from home
Working from home – and its associated costs – affected freelancers, sole traders and self-employed people long before it was normalised by Covid.
Many people who work for themselves in some capacity will use their own home and personal resources for work so that they don’t have to deal with the financial burden of a separate office.
Fortunately, there is tax relief available for self-employed people who use their home as a place of work.
Allowable expenses for self-employed people who work from home
Self-employed people who work from home are allowed to claim costs that relate to the running of their business as allowable expenses for tax relief.
These allowable expenses might include:
- Electrical costs (such as lighting)
- Gas and heating
- Maintenance and repairs
- Internet and telephone costs
- Water usage (if it is a substantial part of your services, e.g. a hairdresser or dog groomer)
The most important thing to remember is that you can only claim for expenses that are directly related to the running of your business. If you work from home this means that you can’t claim all of your household bills – just the proportion which relate to your business.
For example, if you use your internet for personal use as well as professional use, you’ll only be able to claim tax relief on the portion of usage attached to work-related activities.
Calculating expenses for working from home
There are two methods to choose from when it comes to working out your self-employed WFH expenses:
- Simplified expenses: Use HMRC’s flat rate to claim tax relief based on how many hours you work from home per month
- Cost method: Work out what it actually costs you to work from home, so you can claim your business expenses accurately
Let’s break each of these methods down in more detail so you can make an informed choice on how you want to calculate and record your working from home expenses.
Simplified expenses
This is often the quickest and easiest way to calculate your claim for business expenses if you work from home. HMRC set flat rates based on how many hours you work from home:
- 25-50 hours of business use per month: Claim £10 flat rate per month
- 51-100 hours per month: £18
- 101+ hours: £26
The number of hours of business use might vary from month to the next – so be sure to keep records! For example, if you worked 30 hours from home one month (£10 flat rate) but 60 hours another month (£18 flat rate), you could claim a total of £28 for those two months.
The downside is that the simplified expenses method can only be used by those who work more than 25 hours per month from home. So, if you run a side hustle in your spare time and spend fewer than 25 hours WFH, this might not be the best option for you.
Plus, it’s important to note that the flat rate scheme used for the simplified expenses method doesn’t include telephone or internet expenses. You’ll need to calculate your actual usage using the cost method in order to claim these.
It’s also worth working out your actual costs anyway. HMRC’s flat rates may not be enough to cover your actual costs, so check which method if most appropriate for your business!
Cost method
The cost method can seem a bit more complicated, because you’ll need to figure out what part of your household bills are incurred as a result of your business operations. This method is a good option if:
- You work from home less than 25 hours per month
- You want a more accurate representation of your actual WFH costs
- You need to work out and claim a portion of telephone or internet expenses (as these costs cannot be recorded using the simplified expenses method)
- Simplified expenses flat rates aren’t enough to cover the costs incurred
This method of calculation also helps you understand where the costs are in your business, which is always good news for budgeting and cash flow.
An example of the cost method in action
If you have a house with 4 rooms and one of them is your home office, 25% of your home qualifies as being directly related to the running of your business.
So, if your gas bill for the month is £100, you could claim 25% of this as an allowable WFH expense – £25.
If more than one person uses the space, you will need to divide any allowable expenses between you – you won’t be allowed to each claim the full amount!
Looking for further support for your business? Head over to our info hub where you’ll find a whole host of helpful resources.
