If you’re self employed it is important that you keep a close record of your expenses. Offsetting the costs of running your business is a key way to ensure that you don’t pay more income tax than you have to.
If you run your company from home then you can claim the costs incurred by this as a business expense. Keep reading to find out more about how you could pay less tax by claiming expenses for using your home as an office.
52 Ways to Save Tax – Part 16 : Using Your Home as an Office
If you’re self employed your business will have some running costs. As long as these are allowable expenses you can deduct them from your income in order to work out your taxable profit.
If you work from home then you can claim the costs of running your business from home as an allowable expense. You may be able to claim part of the cost of things like:
- mortgage interest/rent
- electricity and heating
- Council Tax
- internet, broadband and telephone use
Just as with other expenses, you can only claim the proportion of the cost that applies to business use. So, if your home phone bill was £100 and you used £40 for work calls, you can only claim £40 as an allowable expense.
If you work from home you have to find a fair way of dividing the costs between your own use and business use. There are two main methods for doing this, as we see next.
- Use the number of rooms
One of the simplest ways to work out the cost of running your company from home is to use the number of rooms on your home.
For example, you have 6 rooms in your home and you use one of these as your office. Your annual electricity bill is £300. Assuming all rooms use equal amounts of electricity, you can claim £50 as allowable expenses (£300 divided by 6).
If you only work from home one day a week, you could claim £7.14 as allowable expenses (£50 divided by 7).
- Simplified expenses
If you are a sole trader or a partnership where no companies are partners you can use ‘simplified expenses’ – as long as you work at least 25 hours a month from home.
Here, you keep a record of the hours you work at home each month. You then apply the appropriate flat rate.
- 25-50 hours worked at home per month – claim £10
- 51-100 hours worked at home per month – claim £18
- 101 or more hours worked at home per month – claim £26
So, if you worked for 75 hours at home for 10 months and 125 hours at home for two months you could claim allowable expenses of £232 (£18 x 10 plus £26 x 2).
The flat rate doesn’t include telephone or internet expenses. You can claim the proportion of these bills used for business use by working out the actual costs.