If you use part of your home as an office, you may be able to lower your overall cost of doing business. Here we outline some of the things you might need to know if you intend to claim expenses.
Firstly, you need to think about HMRC. Don’t worry, it’s unlikely to make any enquiries so long as the claim is reasonable and consistent with the type of business being operated. Be wary that not all local HMRC officers follow this approach, so it’s important that you’re prepared to back up your claim if they ask.
A dedicated room or workspace which is exclusively for business use is a must. If it has a dual purpose i.e. dining or kitchen table, then it’s not allowable as a tax deduction.
Two common ways of working out how much you can claim:
1. The flat rate method
This is the easiest to work out and doesn’t require any records to be kept or evidence of expenditure. HMRC publishes flat rates each year. The current ‘Home As Office’ allowance from April 2018/19 is £18 a month, making an annual claim worth £208. Not much, but better than nothing, and takes up no time or effort to calculate.
2. The apportionment method
Apportionment is when an expense is ‘split’ between business use and private use, on a basis intended to show the portion of time used for each activity. Apportionment is generally calculated according to the floor area of your home used for business purposes.
The apportionment method splits property costs into fixed and running costs; the amount that you can claim will be based on the portion of use that you have calculated as being applied to your business, and/or the actual cost of the business part of the expense.
For example, let’s say one room in a house with four rooms (bathrooms not included) is used as an office with the following monthly expenses:
Electricity – £60
Gas – £20
Council Tax – £100
Insurance – £40
Total = £220
One quarter of the total could be claimed each month, i.e. £55.
(Note that phone calls need to be on a business line, or claimed on a personal line using an itemised bill.)
If you use apportionment, you’ll need to keep all your invoices and receipts as evidence of the costs incurred. By adopting a sensible and realistic approach reflecting your business circumstances, you should be able to successfully handle any HMRC enquiry.
- Decide whether the weekly flat rate of £4 or the more detailed apportionment method is best for you. If it’s the apportionment method, review this annually and maintain a record of costs.
- If you only use a table top while your family watches TV, you are unable to claim use of home. However, If you set aside part of your home at specific times for business use, then you are able to claim.
These tips are for information purposes and are just a place to start. If you want to know more, we recommend you seek advice from a good specialist Contractor Accountant such as Intouch, who will review your specific situation and provide you with the right advice to make sure you’re claiming all the benefits you’re entitled to.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.