Are you a contractor or business owner who is running your own UK company? If you are, you may use your home as an office sometimes for work reasons. You might do this regularly or only now and again. Therefore, if you do this, can you claim the use of home as office as a business expense?
Dealing with admin and other considerations
Many businesses across the UK operate from home. As a result of this, at least all or most of the admin will be dealt with there. As part of this you will need to know how to maintain your business records and how long to store the records for. When you are working from home it will also be good to know how to go about creating an office at home.
It is also worth a note, in a minority of cases, far more of the business activity than merely the admin is done from home.
Besides dealing with business admin, in your office you may have a computer and phone etc to carry out most of your work on. On a separate but related issue, you can claim the full costs of furnishing a dedicated office at home. Therefore, you can claim for carpets, curtains, desks, and filing cabinets. What’s more, you can claim for a business computer and other relevant electronic equipment through your business. You can also claim for the cost of a business phone and related call charges. On your business computer, besides using this to maintain your accounting records, you may also use this to create your sales invoices and consider marketing ideas for your company.
You can also claim the tax depreciation on such items as a tax-deductible business expense.
Have a read of my article covering tax tips for contractors for handy tips you should know when you have your own business (this is a member only article and you can read it if you sign up as a member)
What to consider
Is it fair to make a claim for use of home as office when you work from home?
I think, on balance, it only seems fair that the business should be able to make some form of a claim. The claim should be from the expenses that 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 how you can work out the amount of any payment for the use of your home as an office. There are some costs which stay the same such as Council Tax. If you work from home, you should not take these into account.
Other expenses that you should not take into account will include the cost of buying the home (this included the mortgage payments). Some other costs will include rent, most insurances, and possibly water rates.
But you do work from home sometimes…
When you buy your home, it would be ideal if there is a certain feature, such as a room. You could use this room just for business use. The room would be beyond the number that the household ordinarily requires. If this is so, you can justify a claim for the extra running costs in your home office. When there is no separate office, it is not as easy to work out your home office running costs.
Expenses that you can claim for will tend to comprise of the heat, light, and power supplies. Some cleaning costs might be ok too. Insurance might be too if the cover includes equipment that you use in the business, such as computers and other electronic devices.
History and HMRC guidance
Prior to 2005
Before the end of 2005, there was no benchmark for the use of 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 that a business used in the activities at home.
Cynically, I suppose, claims were made as high as the claimants dared. Perhaps in the hope that HMRC would not challenge their claims at all, or if they were, they could be justified.
HMRC guidance for use of home as office
In early 2006, the 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” The amount was then £4 per week for many years up to March 2020. The amount you can now claim is £6 per week from 6 April 2020.
But today, if you like it or not, HMRC has its benchmark.
A justification exercise
A claim for use of home as office at an amount higher than the benchmark will need to have some scientific justification and some evidence.
Perhaps you could tally up the costs for some time before the business use at home started. You can then compare these with costs for a similar period after, will this be evidence? On the other hand, you can take a tally of the appropriate expenses divided by the number of rooms in the home (one being the room that you use for the business). You can then adjust the amount, up or down, as required. The claim will also depend on the amount of time that you spend in the dedicated office room. You can compare this with the time that you spend in the rest of the house.
What’s more, perhaps you can take some energy that the office equipment consumes. Indeed, a justification exercise may not be easy to put together, and contentions may be difficult to defend. Furthermore, the amount of extra tax that you save might not make a claim cost-effective. Especially if you will incur professional fees in any detailed breakdown or later defence of the claim.
Using your home broadband / phone for business reasons whilst working from home
When you are working at home, you will more than likely be using the internet. What’s more, you may receive business calls or may 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 -HMRC’s rate
Unless my clients have strong feelings to the contrary and wish to justify a higher claim for use of home as office, then I believe claims henceforth should be only the pre-agreed £4 per week. I will also assume this is ok for you unless you tell me otherwise.
You may claim more than £4 per week within your expenses. If you think you can justify the higher level, then you should prepare yourself to perform a justification exercise. This is as I describe above! However, if you now agree to tune down your claim to £4 per week, then please make the required entry in your accounts.
To sum up, as time goes on, more and more business-type people work from home. If you would like to work out how much it costs for you to work from home, you will need to make a comparison. When you do this, you will look at what the overall costs are now. You can then compare these against what your costs were previously.
In most cases, my clients stick to the allowable rate of £6 per week for the use of home as office claims. 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. It could also include if you run various computers at home at the same time.
Link to Contractor Advice UK group on LinkedIn https://www.linkedin.com/groups/4660081/