Use of home as office allowance & working from home tax relief

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Introduction 

As a UK contractor limited company or small business owner, you may work from home (WFH) from time to time. Indeed, when you run your own UK company or sole trader business, you’ll likely utilise home office use. Therefore, it only seems fair that you can make business use of home as office (UK) claims or receive a tax rebate for working from home. What’s more, it may be the case that you find yourself working from home on a more regular basis. Therefore, what can you claim for the working from home allowance if you work at home? Also, while UK contracting, what can you claim for business use of home as office allowance 2023/24 and 2024/25? In this guide, we’ll look at the history of the UK’s use of home allowance and working from home tax relief and discover what we can claim now.

Let’s consider the use of home allowance for directors and HMRC WFH allowance 2024 in more detail. Moreover, we’ll research what you could claim for business use of home expenses for a limited company and WFH tax relief. Furthermore, we’ll examine what you can claim when using your home as an office. In summary, we’ll see what you can claim in 2023/24 and 2024/25 for using home as office allowance (HMRC).

Initial thoughts 

First thoughts

You’ll incur various contractor home office expenses when running a limited company from home and performing work there. These limited company working from home expenses include office, computer-type, and communication costs. Therefore, because of these extra costs for UK contractor’s working from home expenses:

  • What can you claim as an HMRC home office allowance (UK)? Indeed, what can you claim as work from home tax relief for the use of home as office in 2023/24 and 2024/25? You may complete your 2023/24 personal tax return or company accounts now. As a result, you may ask, what can I claim as HMRC working from home allowance 2023/24 and 2024/25?
  • How will we calculate your work from home allowance, and how will you receive working from home tax relief? When we look at the HMRC WFH relief, the UK tax office has a standard rate.
  • Can the extra contractor office costs at home when you claim use of home as office be counted as a business expense? Indeed, your business can claim HMRC working from home tax relief 2024/25 if they are.
  • At what point can work from home contractors or employees claim a working-from-home allowance? 

These are all valid questions regarding the home office used for business. Therefore, in this guide, we’ll look at all of these.

What to consider for use of home as office allowance 2023/24 & 2024/25?

You can claim your limited company home office expenses as part of home office use for your business. Moreover, HM Revenue & Customs (HMRC) use an official term for the work at home allowance. This is called the use of home office allowance. Therefore, what should we consider for working from home allowance (limited company)? Moreover, how can we work out the HMRC use of home allowance for 2023/24 and 2024/25? In addition, will the office at home allowance be tax-deductible when we claim this?

You can claim the tax relief for working from home through your business if you’re a limited company owner. Then again, you can claim work from home tax relief 2024 through your tax return if you’re self-employed. However, what can you do if you’re employed and your employer doesn’t refund you for working at home? The answer here is that you can claim for the use of home tax allowance in your tax return.

It’s key to bear in mind when you claim your use of home as an office:

  • If you’re self-employed, you’ll save Basic or Higher Rate tax and National Insurance.
  • When you claim use of home as office (limited company), the cost will save Corporation Tax).

Therefore, knowing how to claim working from home tax relief is important in both scenarios. 

Primary thoughts on limited company use of home as office (HMRC) 

Use home as office & deal with administration

Many businesses across the UK operate at home. As a result, at least all or most of the administration is dealt with there. Therefore, as part of this, while you’re contracting or trading, as a UK business owner, you must know:

Knowing how to create an office at home when you carry out business-related activities at home is good. This guide is a great read and explains what to consider when you set up your home office (limited company) for future work. It includes the types of costs you can claim as limited company expenses and what to consider when you do this.

It’s also worth noting that, in many cases, far more of the business activity than merely the administration side is done from home.

Common questions

Today, especially after the recent pandemic, many people in the UK will WFH. This includes contractors, business owners, and employees alike. Certain admin-type costs and business work can be done in your home office. As a result, many have questions about what they can claim for work from home tax relief. Therefore, examples of such questions will include:

  • Can I claim tax relief for working from home?
  • How much can I claim for a home office?
  • Can I claim working from home on my taxes?
  • Can I deduct business use of home?
  • How much can I charge my business for my home office?
  • What expenses can I claim for running a business from home?
  • How much to claim for home office?
  • What home office expenses are tax-deductible?

In this guide, we’ll research these questions for the use of home as office allowance 2023/24 and 2023/24 in more detail. We’ll also examine claiming home office expenses (limited company). As a result, we’ll see how you can claim working from home tax relief.

Set up your home office 

First thoughts 

Besides claiming for the use of home as office in 2024/25, when you deal with business administration and other tasks, you’ll use specific equipment. Therefore, you may have a business computer and associated equipment to do most of your work.

When you think about creating your contractor office at home, it’s best to have a separate room and keep work-related areas separate from personal ones. Therefore, once you decide where your working space is, consider what you can claim as business expenses.

What can you claim for your home office as limited company expenses?

The cost of furnishing a dedicated contractor office at home will likely include:

  • Carpets.
  • Curtains.
  • Flooring.
  • Desks.
  • Filing cabinets.

These will all be genuine tax-deductible expenses (UK limited company). Therefore, please obtain receipts or invoices when you purchase such items.

It’s not advisable to claim for any structural changes to your property regarding 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 & 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’s 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 use this to:

  • Write official company letters.

Please read our guide, which provides tax tips for UK contractors. This includes many handy tips and advice you should know when you have your own business. 

How does the working from home allowance 2023/24 & 2024/25 work? 

Is it fair to claim home office use when you work from home?

On balance, it seems fair that the business owner should be able to claim business use of home allowance (limited company). The claim for your contractor home office expenses (limited company) should be the business proportion of the contractor office expenses you incur when running a home office you use in part for such purposes.

The best option when claiming expenses for working at home is to avoid a tax cost for you as the business proprietor/homeowner. Indeed, when claiming for home office expenses, you mustn’t be making a profit when you claim tax relief for working from home. Therefore, what should you consider for your use of home as office allowance 2023/24 and 2024/25? One key point is that you don’t describe the payment as rent. If the business pays you rent, then this will be taxable income for you as an individual.

Therefore, you must find a way to determine the amount of any payment for using your home as an office. Some home office costs (limited company), such as Council Tax, stay the same if you perform contract work from home. Therefore, you can’t include these costs in your work from home tax relief.

Other expenses which you shouldn’t claim for your contractor office as work from home tax deductions include:

  • The cost of buying the home (this includes the mortgage payments).
  • The rent.
  • Possibly the water rates.

If you claim the above, you’ll pay tax on these as they are not genuine elements of a WFH claim.

Other aspects to consider

Please see this HMRC community question for HMRC’s response on claiming rent through a UK company.

The cost of your company’s business insurance is a separate business expense and isn’t part of a WFH claim. Suppose your business insurance is up for renewal. In that case, you can receive a significant 10% contractor discount with Code CAUK10 at checkout on policies from one of the best contract insurance providers in the UK.

But you do perform contractor work from home sometimes

When you buy your home, having a separate room where you can work would be ideal. You could use this room just for business, which would be beyond the household’s usual number. If so, you can justify a claim for work from home tax relief for the extra running costs you incur while working in this room. On the other hand, it’s not as easy to work out your home office running costs and claim work at home tax relief when you don’t have a separate room for your office.

Expenses you can claim for your contractor working from home expense will tend to comprise utility bills. Therefore, such home office costs will mainly include:

  • Heating.
  • Lighting.
  • Power supplies.
  • Some cleaning costs might be ok, too.
  • Personal insurance might be ok if the cover includes equipment such as computers and other electronic devices you use in the business.

Many business owners will think that when they make a home office claim, they can include a proportion of their rent or mortgage or even part of the mortgage interest. However, these costs aren’t allowed for limited companies, as mentioned earlier, because you’d incur these costs whether you work at home or not. However, interestingly, HMRC allows self-employed people to claim the business proportion of rent when they work at home. As a result, they’ll receive work at home tax relief on these costs. 

HMRC guidance on an allowance for working from home tax relief 

Recent history & the use of home as office allowance (UK) 

Before the end of 2005, there was no benchmark for using your home as an office.  Neither the Inland Revenue (now HMRC) nor accountants had any guidance on what proportion or absolute amounts of running expenses they could regard as acceptable when claiming for business use of home as office. Indeed, separate meters would be required to measure the amount of energy a business uses in the activities at home before looking at a claim for the use of home (HMRC).

We suppose previously, many directors’ use of home allowance claims were made as high as the claimants dared, perhaps hoping HMRC wouldn’t challenge their use of home (limited company) claims. Moreover, if HMRC challenged them, they’d assume their claims could be justified. 

HMRC guidance around using your home as an office tax relief (working from home)

When we research how much I can 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.” One can claim this flat rate for using their home as an office.

Subsequently, the amount allowable for your contractor working from home expense increased to £4 per week, which stayed in place until 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 could claim for using the home as office allowance 2021/22 and as a tax deduction for the home office was £6 per week. After this, the HMRC use of home as office allowance 2023/24 and 2024/25 is still a standard claim of £6 per week. Therefore, the HMRC working from home allowance for 2023/24 and 2024/25 is £6 per week (£26 per month). Furthermore, work at home tax relief and the HMRC working from home rates in future years will likely increase. Indeed, this only seems fair, given the recent increase in UK energy costs.

Therefore, today, whether you like it or not, HMRC has its benchmark for work from home tax relief and use of home as office (£6 per week). On an annual basis, this equates to a working from home tax rebate of £312. 

Claim limited company use of home as office (HMRC) 

A justification exercise & how can you do this?

A claim in respect of work from home allowance for 2023/24 or 2024/25 at an amount higher than the benchmark will require some scientific justification, and it requires some evidence to support this:

  • As a starting point for your use of home expenses for limited company purposes, 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 enough evidence for your WFH tax relief?
  • Another option is to tally up the appropriate expenses for a period, say a week. 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. Your claim for WFH tax relief 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 use the energy usage of office and computer equipment to calculate your work from home allowance for 2023/24 and 202/25. Indeed, a justification exercise may not be easy to assemble, and contentions may be challenging to defend. The extra tax you save might not make a claim cost-effective. Not being cost-effective will also occur if you incur professional fees in any detailed breakdown or later defence of the claim.

The advisory rate for use of home allowance 2024 & 2025 -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.

Suppose you think you can justify a higher amount than the £6 per week for your work from home claim, e.g., in a scenario where you use your home exclusively for work or work from home most of the time. In that case, you should prepare yourself to perform a justification exercise. We explain such an exercise above.

If you claim an amount for using your home for business reasons and HMRC deems this excessive, the payment is subject to National Insurance for the employer and Income Tax for the employee.

Other thoughts 

HMRC simplified expenses if you’re self-employed 

You can use HMRC’s simplified expenses option as a working from home tax rebate if you’re:

  • Self-employed; and
  • Work for 25 hours or more a month from home.

You can claim the rates below as a work from home tax rebate for your monthly work hours. However, it’s key to 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

Do you use your home broadband/phone for business when working from home?

While you’re working from home, you’ll more than likely be using the internet. What’s more, you may make and receive business calls while working. Therefore, in most cases, you can make claims for your business phone calls and broadband usage. 

Rent a separate office

If you rent a separate office or work unit away from your home, you can claim for the expenses which relate to this:

  • Rent.
  • Business rates.
  • Utility costs.
  • Phone and broadband costs.

As with any business expenses, you should ensure contracts and bills are in your company’s name rather than yours. 

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 and claim working from home tax relief, you should make a comparison. You’ll look at the overall costs when calculating your HMRC working from home allowance for 2024/25. Therefore, to work out your claim for HMRC use of home as office allowance 2023/24 and 2024/25, you can compare the current costs against the original expenses before starting your business. As a result of claiming your WFH allowance 2023/24 and 2024/25, you’ll receive tax relief (working from home) as a company or self-employed person.

In most cases, limited company contractors and small business owners will stick to the allowable fixed rate of £6 per week as a claim for business use of home as office 2023/24 and 2024/25 when they use their home for business purposes. That’s unless they spend much more than the occasional time working from home. Examples here could include where you work several days per week at home. On the other hand, you may run various computers at home, which results in higher costs.

Finally, if you haven’t been claiming for your director’s use of home allowance, you can also claim for WFH allowance 2024 now and in the future. Moreover, you can also claim your working-from-home allowance (limited company) for previous tax years.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: April 6th, 2024 / Categories: Expenses, Expenses Guides, First timer guide /

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