Use of Home for Your Self-Employed Business

Use of Home

Since the beginning of covid pandemic in 2019, businesses have transformed their operations. There are no longer lavish offices with thousands of employees crowding the work floor. Instead, there are scanty places at home where a single setup is enough to remain in touch with rest of the office members. In the current situation, are you aware of the fact that you can claim certain expenses as deduction? One such expense is ‘use of home’.

How to compute business use of home?

When it comes to calculating this expense, there are two ways of doing it:

  • Flat rate method
  • Cost method

Flat Rate Method:

Under the flat rate method, the computation takes place by considering the number of hours that you have spent at home for business purpose. The breakup of claim as approved by HMRC stands at:

  • 25-50 hours: £10/ month
  • 501-100 hours: £18/ month
  • 101 hours and more: £26/ month

Using this method makes computation of claimable expense faster and accurate. Nonetheless, the amount of claim may be less than what you have actually spent, eventually, resulting in payment of higher taxes. The cost includes cost of heat, power and light. Other cost factors such as rent, telephone bill, broadband bill, etc., needs to be worked out separately.

Cost Method:

Under this method, you are required to consider the cost aspect and it drills down to various cost that forms an expense at your home. HMRC suggests that claim under cost method should be made under the assumption of being fair and reasonable. There are to be a clear segregation between private use and business use.

Let’s take an example- Mr Andrew is a self-employed person who is currently using his home as his office. His home consists of 5 rooms out of which he uses 1 room as his office. So, computation of deduction would be accumulation of all running cost (see below to find the list of permitted cost) and then taking 20% of the value (as only 1 room is being used for business out of 5).

What are the running costs that I can include?

Running costs refers to recurring cost that people have to bear while staying at home. The list includes:

  • Mortgage: Being self employed and working from home gives you the opportunity claim a part of the mortgage interest as deduction. The portion will depend on the use of property for business purpose. However, no deduction will be available towards principal amount.
  • Rent: If you own a property, then you will not be able to claim any rent for business. However, if you are living in a rented property then a proportion of the rent can be claimed as a deduction.
  • Council tax: As a property owner, you would be liable to council tax. A part of the council tax can also be claimed as a deduction.
  • Light and Heat: A part of light and heat bills is eligible for deduction.
  • Telephone and Broadband bills: Like, light and heat bills a portion of telephone and broadband bills are also eligible for deduction. If the connection is exclusively for business purpose, then the whole bill is eligible for deduction.
  • Property repair: If certain adjustments are made within the property to facilitate business operations at home, then the complete amount is eligible for deduction.

When it come to working from home, there are plenty of challenges as well as perks. Our team of experts can help you with tax planning and management. For a FREE consultation, reach out to us at +44 3301331114 or write to us on [email protected] .