Using your home for self-employed work usually means you can claim any household costs relating to your business as an expense by including it as part of your overall expenses on your tax return, helping to reduce the amount of tax you need to pay.
In this article we look at what financial support is available to self-employed business owners who work from home.
Types of tax relief to claim when working from home as a self-employed worker
There is a whole array of tax relief available for self-employed workers, including part of the running costs of your home if that’s where you work from. Claiming can help keep cash flow healthy as well as your stress levels at bay.
What’s absolutely crucial when claiming any expenses is that you only claim the portion which relates wholly to your business. We cover this further in our article about claiming allowable expenses!
Typical examples of costs you can claim when working from home
- A portion of mortgage interest on your home (not including capital repayments)
- A portion of your rent, if you rent your property from a landlord
- Gas and electricity costs (heat and light) for the rooms which you use when working for your business
- Telephone and internet connection (based on a split between business and personal use)
- Repair or maintenance of a room that you use specifically for your job, such as a home office. You might also be able to claim for a portion of repairs or maintenance on the whole property, such as the roof. You can’t claim on a room which you don’t use for your work at all (e.g. the bathroom).
Claiming for water bills when working from home
Unfortunately claims for working from home don’t include water bills if your usage is only on a minor day-to-day basis.
Some businesses, such as a car washing service or home-working hairdresser, do require significant water usage. In this case you’ll need to apply to your provider for a separate charge, and then claim back the cost.
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.
