What costs are tax allowable if I am running my business from home?
Many of us nowadays run our businesses from home so what costs can we count as business and hence claim a tax deduction for?
Firstly it is an employer’s responsibility to provide a safe environment for workers to work; that starts with suitable equipment but includes all the usual health and safety regulations as well as security, whether that place of work is in the office or elsewhere e.g. home.
So start with what is required e.g. a computer with desk and chair to sit at – are they safe? The easiest way to ensure this is to provide new. We can extend this to a full office refit that can include changes to heating, lighting, air conditioning, and decoration to create that right office environment.
To be deductible in the business, equipment should be wholly and exclusively for business use, when provided. However there are exceptions
- if provided to an employee
- if reimbursed to an employee then they must also be necessary
- if dual purpose then the cost may be split or apportioned
- incidental later personal use can be ignored
An employee, provided with equipment that they may use personally, may be subject to a personal tax charge on that equipment as a benefit in kind – again there are exceptions
- computer equipment with a business use
- one mobile phone
- under £50 trivial benefit threshold
- Commercial vehicles other than Vans
Do not forget that most equipment has maintenance costs that may be considered business if the equipment is business e.g. batteries for a mouse, paper and ink for the printer or virus checker for a computer.
Phone & Internet Services
HMRC have their own specific rules on phones
- A business line is not taxable
- Business use/proportion of a home/personal line may be claimed/reimbursed tax free
- One mobile phone, provided to an employee and available for personal use, is tax free
- Any private/home line paid for by the employer is taxable
HMRC have been treating internet connections like phones but appear to be planning to treat them like gas and electricity i.e. property related, in future.
The above is for kitting out an office space, but what about creating that office space?
The house is your personal residence, and there can be undue complications in trying to convert part of that into office premises
- Planning permission
- Business rates
- Capital Gains tax on disposal
- Covenants and neighbour disputes
Added to this there is in fact no business tax relief for a property in which you conduct business.
Hence it is not usually worth considering office conversion costs for your loft, garage, basement etc. Basically start claiming fitting out costs above once you have a habitable space.
A separate temporary building in the garden, one that can be relocated within days, may be classed as business plant or equipment and hence get tax deductions, but only if it has a business function, other than being a place in which to conduct business
As regards maintenance, think landlord and tenant – what would you expect the land lord, you as homeowner to repair, and what the tenant, your business to repair.
Specifically works on an employee’s own property are a taxable benefit on that employee.
Use of home
Employees and Directors
If an employee is required by their employer to work from home, then the additional costs of so doing are tax free if reimbursed by the employer, or the employee may claim HMRC tax free allowance of £6 per week.
Firstly make sure you pass HMRC work from home tests:-
- The employer must require the employee to work from home, e.g. in contract
- There must be facilities at home not available in the workplace e.g. no desk at the office or office closed
- You must have incurred additional costs as a result e.g. extra heating
Then take action:-
- Ask your employer if they will reimburse you for the additional costs
- Calculate the additional costs (for heating & lighting your work area, business phone calls etc.), keep evidence & put in your claim for reimbursement
- If your employer will not reimburse, then claim the £6 per week allowance on your personal tax return and/or from HMRC via your tax code
If you are self-employed (as a sole trader or business partner) then you may claim a proportion of your most regular household bills for working from home. This can include: –
- Fuel oil
- Water rates
- Cess pit emptying
- Ground rent
- Interest on the mortgage
- Council tax
- General maintenance
Once you have collated and added up the total costs then you need to apportion based on business use for your home.
There is no set way to make the apportionment, HMRC examples are based on number of rooms and time used e.g.
- Step 1 – apportion costs over rooms e.g. by number or floor pace
- Step 2 – apportion again by usage e.g. 1 day per week
The general rule is reasonable and keep evidence of how you have done your calculation.
Alternatively you may choose to claim HMRC simplified expense rates for working from home, of
25 to 50 hours – £10 per month
51 to 100 hours – £18 per month
Over 101 hours – £26 per month
If you would like to discuss your homeworking costs then do contact us