What Expenses Can We Claim When Working From Home?

Written By Alan Young

Working From Home

In our earlier posts, we took a look at some of the things we need to consider, when thinking of starting a business from home, followed by a quick look at when we need to tell the Tax Man we are doing so.

In this post, we will take a look at what expenses we can actually claim, when we chose to do so. HMRC offers us two main options for claiming expenses;

  • Claiming a proportion of the actual running costs of the house, insofar as they relate to the business element of the property, or;

  • Claiming a flat monthly rate, based on the number of hours a month we spend working from home.

If we believe that our legitimate business expenses are more than the flat rate allowances, then we can claim a proportion of our actual household running costs against the business.

If we decide to work on a proportion of actual running costs, then we will need to be able to demonstrate why we have used those percentages, and how we have calculated our allowable expenses. This could be a simple pro rata basis for fixed costs, such as council tax / rent, or a specific usage basis, for things like telephone and electricity. As long as we can demonstrate how and why we have used the calculations we have, then this can be a cost effective way of maximising our allowable expenses claimed.

For many, however, especially if we are primarily working from home, as opposed to running a full on business from home, it may be preferable to claim the flat rate WFH (Working From Home) Allowance. This is, of course, far simpler than having to calculate specific business elements of household expenses. Worth noting that the flat rate allowance only covers household running costs, and does not include telephone or internet costs. You can still claim the business element of these, on top of the WFH Allowance.

In order to use the simplified expenses basis, you will need to work at least 25 hours a month from home. If you do, then you can claim the following:

  • Between 25 and 50 hours a month, we can claim a flat rate allowance of £10 per month.

  • Between 51 and 100 hours a month, this is increased to £18 per month

  • If we work 101 hours a month, or more, we can claim £26 a month in flat rate allowances.

You can ‘mix an match’ these rates, to suit the amount you work, so, for example, if you normally work 40 hours a month, but have worked two months at 60 hours, then you would claim 10 months at £10, and two months at £18.

To work out which method is best for you, HMRC have an online checking tool; check if simplified expenses could save your business money.

Living At Your Business Premises

A small number of us may actually live at our business premises. Examples of this would included a guest house or small care home. In this situation, we are faced with the same choice of calculating a proportion of actual costs, or using a flat rate allowance.

Where using simplified expenses, we would calculate the total running costs of the premises, and then deduct a flat rate to cover our personal use of those premises. The rates are based on the number of people, and are applied as follows:

  • If we live alone in the premises, the private use deduction is £350 a month.

  • When there are two of us, this is increased to £500 a month.

  • If there are three or more of us, the monthly rate tops out at £650 per month.

Again, the flat rates are applied on a pro rata basis, depending on the amount of time spent living in the premises. The obvious example would be that of a child, who lives away at university 9 months of the year, but lives at home for 3 months.

Vehicles

Although not directly related to our premises, it’s worth taking a quick look at vehicles here, as they are claimed on a very similar basis, insofar as we can claim the business element of actual running costs, or we can work on a simplified mileage rate basis. If opting for the former, then we would calculate the capital allowances (cost of buying) as well as all running costs, such as road fund licence, repairs, servicing and insurance, and then calculate the proportion of that used for business.

You can apply simplified expenses to cars, goods vehicles and motorcycles, unless they are designed for commercial use (such as black cabs and dual control driving instructors’ cars).

If you do chose to use simplified expenses, then you cannot use these if you are claiming any other vehicle running costs, or capital allowances. For vehicle expenses, we work on a flat rate per mile, depending on our total mileages, as follows:

  • For cars and goods vehicles, we can claim 45p a mile for the first 10,000 business miles a year.

  • After 10,000 miles, the rate is claimed at 25p a mile.

  • For motorcycles, the flat rate is 24p a mile, regardless of overall mileage.

You don’t have to use the flat rate scheme for all your vehicles, however, once you apply it to a specific vehicle, you must continue to do so, until that vehicle is sold.

Alan Young
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When Do we Need To Tell The Tax Man About Our business?