If you work from home as a limited company – say, for example, that you’re an IT contractor working remotely – you don’t just save by skipping the commute, but there are ways to claim expenses for working from home. So what can you claim, how do you do it, and what else do you need to know?
Claiming Work from Home Expenses while Self Employed
Whether you’re an IT contractor as above, an influencer on social media, or even a carpenter, it’s safe to say there is some equipment you wouldn’t be able to do your job without! If you were working in an office building, you or your employer would have claimed expenses for the desk you sit at, the chair you sit on, and the computer you use. The same is true when working from home, but calculation is a little more complicated.
Claiming Expenses for Equipping a Home Office
You probably have a room you do most of your work in at home. Another way of thinking about this is that you have a home office (or home workshop for our hypothetical carpenter). So there are going to be things there which you can claim for.
You will need to be able to show that you spend time there doing your job regularly. If you spend most of your time working at a client’s office or some other location, you can’t claim.
The often-quoted basic guideline is that anything claimed on expenses should be “wholly, exclusively, and necessary” for your business. That is, you should intend to use it exclusively for business purposes, and it should be necessary for some aspect of your business.
However, like most basic guidelines, there are a number of exceptions and special cases which make this more complicated. For this reason, we recommend consulting with your accountant before submitting your claim unless you are personally familiar with relevant legislation and guidance.
You can claim for tax relief when buying equipment that you require to carry out your work. If you use a computer for more than just basic admin, buying a computer is eligible for tax relief. Buying a new vacuum cleaner would almost certainly not be.
If you buy a bookcase for your home office so that you can store any physical paperwork on it (receipts, invoices, etc.) as well as any reference texts appropriate for your work, you may be able to claim on this just as you would if you were equipping an office elsewhere provided that there is no significant personal use – it will be considered a ‘benefit in kind’.
Ongoing Work from Home Expenses as a Limited Company
There are two common methods for claiming ongoing home office expenses as a limited company.
In the first, you simply use HMRC’s flat-rate allowance for this purpose, which at the time of writing is £6 per week. That adds up to £312 annually if you work each week.
The intention behind this allowance is twofold. First, it allows a very simple method for claiming expenses and is not evidence-driven. Second, it supports you with heating and electricity costs and other general utility expenses, so if you don’t have significant extra expense it’s a useful option.
The flat rate isn’t intended for internet or phone use, and as such it may not be appropriate, especially if either your phone bill or some other ongoing expense is significantly increased by working from home.
Hence the second common method, which allows you to claim a proportion of your ongoing household expenses. This does require some detailed record-keeping, however. You’ll need to:
- Keep track of your total utility costs, including electricity, gas, water rates, rent or mortgage payments, council tax, insurance, internet, telephone line rental, etc.
- Determine how much of your use of each room is business related, based on a percentage of time spent in the room. For example:
- 95% of the time spent in your home office is on business
- 15% of the time spent in your living room is on business because you like to use it as a backdrop for video calls
- 5% of the time spent in your bedroom is on business when you review the day’s email before bed
- 0% of the time spent in your kitchen is on business
- Divide each expense evenly by the number of rooms (hallways, porches, and bathrooms do not count). For the sake of an easy example, let’s say that the heating bill works out to £100 per room.
- You can claim for each room according to the percentage of the time spent working. In our ongoing example, you would be claiming on £115 in total.
This is obviously a more complex method, but depending on your requirements it may be more useful.
To decide what’s the most appropriate way for you to handle your expenses claim, or to help you calculate it, why not get in touch? We’re looking forward to talking with you.
