Introduction
As a UK contractor limited company or small business owner, you may work from home from time to time. You will do this as part of running your own UK company or sole trader business. It may also be the case that you find yourself working from home on a more regular basis. Therefore, if you do find yourself using your home as an office due to working at home, what could you have claimed as your use of home as office allowance 2021/22 (UK)? In addition, what can you claim for use of home as office allowance 2022/23?
You will incur various contractor home office expenses when you are running a limited company from home and perform work there. These will include office costs as well as computer type expenses and communication costs. As a result of these additional UK contractor working from home expenses:
- What can you claim as a home office allowance with regard to your use of home as office?
- How will we calculate your work from home allowance?
- Can the additional office costs from home when you claim use of home as office be counted as a business expense so that your business can claim tax relief?
- At what point and when can we claim for your working-from-home allowance?
Therefore, let us investigate what you could claim for use of home as office 2021/22 and what you can now claim in 2022/23 for your using home as office allowance.
Use of home as office allowance 2022/23
When you claim your limited company contractor home office expenses, HM Revenue & Customs (HMRC) uses an official term for the work at home allowance. Please note, this is called the use of home office allowance. Therefore, how can we work out the use of home allowance, and when we claim for this cost, will it be tax-deductible?
You can claim the cost through your business if you are a limited company owner. On the other hand, you can claim through your tax return if you are self-employed. You may also be employed; if your employer does not refund you for working from home, you can also claim your tax return.
Please note, with respect to making a claim for use of home as an office:
- When you are self-employed, you will save Basic Rate or Higher Rate tax and National Insurance.
- When you claim use of home as office (limited company), the cost will save Corporation Tax).
Initial considerations –use of home as office (HMRC)
Use home as office and dealing with administration
Many businesses across the UK operate from home. As a result, at least all or most of the administration will be dealt with there. As part of this, a business owner will need to know:
When you carry out business-related activities from home, it is also good to know how to create an office at home.
It is also worth a note, in a minority of cases, that far more of the business activity than merely the administration side of things is done from home.
Setting up your home office
When dealing with business administration and other tasks, you will need to use specific equipment to do this. Therefore, you may have a business computer and associated equipment to carry out most of your work.
When you think about creating your home office, it is best to have a separate room, and it is best to keep work-related areas separate from personal ones. Therefore, once you decide where your working space will be, let us consider what you can claim as business expenses.
What can you claim
The cost of furnishing a dedicated office at home will include:
- Carpets.
- Curtains.
- Flooring.
- Desks.
- Filing cabinets.
Please note that it is not advisable to claim for any structural changes to your property in respect of your home office. If you were to do this you may have Capital Gains Tax implications to deal with later when you sell your property.
Computer and electronic equipment
As part of your new office at home, you can claim a business computer and other relevant electronic equipment through your business. If you have a landline for business reasons, you can claim this cost if it is a dedicated business phone line.
What can you use your business computer for
On your business computer, besides using this to maintain your accounting records, you may also use this to:
- Write official company letters.
- Do research online and consider marketing ideas for your company.
Please read our article covering tax tips for UK contractors. Notably, this includes many handy tips and advice you should know when you have your own business.
HMRC use of home as office allowance 2021/22 and 2022/23 -what to consider?
Is it fair to claim home office use when you work from home?
We think, on balance, it only seems fair that the business owner should be able to make some form of a claim for use of home allowance. Notably, the claim for your contractor home office expenses should be the business proportion of the contractor office expenses you incur when you run a home office that you use in part for such purposes.
The best option is to avoid a tax cost for you as the business proprietor/homeowner when you make a claim. Indeed, for you to do so, you mustn’t be making a profit in this. It is also vital that you do not describe the payment as rent. If the business pays you rent, then this will be taxable income for you as an individual.
Therefore, you will need to find a way to determine the amount of any payment for using your home as an office. Some costs, such as Council Tax, stay the same; if you work from home, you should not include these.
Other expenses which you should not claim will include:
- The cost of buying the home (this includes the mortgage payments).
- The rent.
- Most insurances.
- Possibly the water rates.
But you do work from home sometimes
When you buy your home, it would be ideal to have a separate room where you can work. You could use this room just for business use, and this room would be beyond the number that the household ordinarily requires. If so, you can justify a claim for the extra running costs you incur while working in this room. It is not as easy to work out your home office running costs when there is no separate office.
Expenses that you can claim will tend to comprise utility bills. These will mainly include:
- Heating.
- Lighting.
- Power supplies.
- Some cleaning costs might be ok too.
- Insurance might also be ok if the cover includes the equipment such as computers and other electronic devices and you use these in the business.
Many think they may be able to claim a proportion of their rent or mortgage or even part of the mortgage interest. However, these costs are not allowed, as mentioned earlier, because you would incur these costs whether you worked from home or not.
Recent history and the use of home as office allowance (UK) -HMRC guidance
Before the end of 2005, there was no benchmark for you if you were using your home as an office. Neither the Inland Revenue (now HMRC) nor accountants had any guidance as to what proportion or absolute amounts of running expenses they could regard as acceptable. Separate meters would be required to measure the amount of energy a business uses in the activities at home.
Cynically, we suppose, use of home allowance claims were made as high as the claimants dared. Perhaps in the hope that HMRC would not challenge their claims at all. Alternatively, if HMRC challenged them, then the claim could be justified.
HMRC guidance -using your home as an office tax relief
When we investigate how much can I claim for using my home as an office (UK), let’s first look at the recent history. In early 2006, HMRC issued a bulletin about home office use. We paraphrase, “in recognition of the increasing occurrence of people carrying out their work from their homes, HMRC will not seek to challenge a claim towards home running expenses up to £3 per week”. Please note that this is a flat rate amount that one can claim.
Subsequently, the amount was increased to £4 per week, which stayed in place for many years up to March 2020. The amount then increased to £6 per week from 6 April 2020, just after the start of the recent pandemic. Subsequently, the amount you can claim for the use of the home as office allowance 2021/22 is £6 per week. In the following year, the use of home as office allowance 2022/23 is still a weekly amount of £6.
Therefore today, if you like it or not, HMRC has its benchmark for use of home as office (£6 per week).
Use of home as office (HMRC) -a justification exercise
A claim for use of home as office allowance 2021/22 and 2022/23 at an amount higher than the benchmark will need some scientific justification, and it will also need some evidence to support this:
- As a starting point, you could tally up the costs for some time before the business use at home starts. You can then compare these with costs for a similar period after the business has commenced. As a result, will this then be evidence?
- On the other hand, you can take a tally of the appropriate expenses for a period of time. You can then divide the cost by the number of rooms in the home (one being the room you use for the business). You can then adjust the amount, up or down, as required. The claim will also depend on your time in the dedicated office room. You can then compare this with the time you spend in the rest of the house.
What’s more, perhaps you can take some energy that the office equipment consumes in calculating your use of home as office allowance 2021/22 and 2022/23. Indeed, a justification exercise may not be easy to put together, and contentions may be difficult to defend. The extra tax you save might not make a claim cost-effective. Not being cost-effective will also be the case if you incur professional fees in any detailed breakdown or later defence of the claim.
Simplified expenses -if you are self-employed
You can use the simplified expenses option if you are:
- Self-employed; and
- Work for 25 hours or more a month from home.
You can claim the rates below for how many hours you work at home each month. Please note that these rates are for self-employed people rather than directors of limited companies.
|
Hours of business use per month |
Flat rate per month |
| 25 to 50 | £10 |
| 51 to 100 | £18 |
| 101 and more | £26 |
Using your home broadband/phone for business reasons while working from home
While you are working from home, you will more than likely be using the internet. Moreover, you may receive business calls while working or need to make them yourself. Therefore, you will, in most cases, also be able to make claims for your business phone calls and broadband usage.
Advisory rate for use of home allowance 2022 and 2023 -HMRC’s rate when working from home
Unless a business owner has strong feelings to the contrary and wishes to justify a higher claim for working from home, we believe claims henceforth should be only the pre-agreed £6 per week.
If you think you can justify a higher amount than the £6 per week, e.g., in a scenario where you use your home exclusively for work or work from home most of the time, you should prepare yourself to perform a justification exercise. Such an exercise is explained above.
If you claim an amount for using your home for business reasons and HMRC deems this excessive, the payment will be subject to National Insurance for the employer and Income Tax for the employee.
Renting a separate office
If you rent a separate office or work unit away from your home, you can claim for the expenses that relate to this:
- Rent.
- Business rates.
- Utility costs.
- Phone and broadband costs.
As with any business expenses, you should ensure that contracts and bills are in your company’s name rather than your personal name.
Final thoughts
To sum up, as time passes, more and more business-type people work from home. If you want to work out how much it costs you to do this, you will need to make a comparison. When you calculate this, you will look at the overall costs. To work out your claim for use of home as office allowance 2022/23, you can compare the current costs against the original expenses before starting your business. As a result of claiming to use your home as an office, either as a company or self-employed person, you will receive tax relief.
In most cases, limited company contractors and small business owners will stick to the allowable fixed rate of £6 per week when they use their home for business purposes. That is unless they spend much more than the occasional time working from home. Examples here could include where you work several days per week from home or if you run various computers at home at the same time.
Finally, if up to now, you have not yet been claiming for your use of home allowance you can claim for this now and in future. In addition, you could also claim for previous recent tax years.
Link to Contractor Advice UK group on