Working from home? This is how to claim tax relief and expenses
There are a many great benefits to working from home - the details of which we’ve talked about elsewhere on the blog - but perhaps the most obvious benefit can be overlooked: tax breaks.
Unlike a traditional office job, the HMRC will permit you to claim certain expenses if you’re registered as self-employed and use your home as an office. However, it can be a bit fiddly to unpack the rules of HMRC, so, in this article, we’ll walk you through what you can and can’t claim for, and how.
Making your home your office
Simply by setting up a limited company and working from home, HMRC will permit you to claim £4 a week without the need to keep any detailed records. This may not seem like a large amount, but over the course of 52 weeks, this mounts up to £208, which could make all the difference for paying off a phone bill, renewing your home insurance or investing in a new printer.
In addition, you don’t have to pay any tax on this £4 a week in your Self Assessment, so it really is free cash!
However, there are rules. In order to be entitled to this claim, your home must be your main place of work and you should be able to prove that you regularly spend time working there. If most of your time is spent on-site or meeting clients elsewhere, then this isn’t the relief for you.
Don’t skimp on equipment
Another handy top tip is that the HMRC permits you to claim tax relief against any equipment that is necessary for you to conduct your professional activities. This can include laptops, printers, stationary, office chairs and tables, and bookcases.
The internet for all, or maybe not
If you, like the vast majority of freelancers and the self-employed, use the internet in the operation of your business then it is worth purchasing your connection in the name of your limited company. In this way, you can claim expenses against your usage.
However, you won’t be able to claim for any internet costs that include personal use: family or housemates who jump on to use your broadband will preclude you from making this claim. If this is unavoidable in your home, it might be worth setting up a separate line for your home office. If this line is accessed solely in and by that office then you will be able to claim all of those internet costs back.
Go mobile, go business mobile
Phone calls are often an integral part of working from home, and if this is the case for you then it is most certainly worth investing in a business-specific mobile phone in order to gain full tax relief on the cost of the phone and its use. To do this, you’ll need to take a contract with the service provider directly with your company.
With a phone registered under your company’s name, you’ll also reap two additional rewards:
1. Personal calls are treated as a tax-free benefit in kind - this means they are an allowable business expense and so will encounter no tax
2. You’ll receive Corporation Tax relief on your phone bill. For example, if the entire annual balance of a mobile and its contract is £1,000, then your taxable profit would fall and the amount of Corporation Tax you pay would reduce by £190 (figures correct for 2018/19 tax year)
Turn up the heat
Working from home means extra unavoidable costs - we’ve mentioned the internet and phone use already, but what about heating, water, electricity and general wear and tear on your home? You can apply for tax relief on all of these things, and also fixed costs such as your mortgage interest, home insurance and Council Tax.
You won’t be able to claim on the full amount for all of these costs - but you can claim a portion. To do so, figure out how much of your floor space is dedicated to your business and determine the volume of time you spend in that area. With this number, you can work out what percentage of your household costs you can claim tax relief on.
This infographic from FreeAgent explains more on how to work out what portion you can claim for.
Exemptions to the rule - checklist
Before you start your Self Assessment and make your claim for tax relief, make sure you’re abiding by HMRC’s rules. You cannot claim tax relief if:
You choose to work from home
You’ve agreed with your employer to work at home voluntarily
To find out more about what expenses you can claim if you’re self-employed, visit www.gov.uk. You can also use simplified expenses to calculate what you can claim for if you work for 25 hours or more from home.
