Home working expenses – what to claim

I hate to say this, but tax return time is starting to loom large on the horizon (31 January, as if you could forget).

Knowing what home working expenses you can claim might make the process a bit more palatable, so here is tax return coach Rosie Slosek with some valuable tips:

Working from home is very common amongst freelancers.

In fact, since you’re here on Work From Home Wisdom, I’m hoping you love it as much as I do.

I work from home and have done as long as I’ve been my own boss. While working from the top of my chest of drawers in a tiny London flat can be a challenge, I wouldn’t change it for the world.

My partner also works from home and has his own business, so when it comes to understanding working from home, I’ve been there and bought the T shirt (and extra layers and thermal socks for winter home working).

One thing about working from home though – your bills go up. HMRC recognise this and you’re allowed to claim some tax relief. (I’m focusing on sole traders working from home, but if you’re an employee or have a limited company, you can also claim expenses. The procedure is slightly different that’s all).

In fact, working from home expenses is one way I save money for pretty much every client.

This is your guide to claiming working from home expenses:



1. Home Working Expenses: Gas & Electricity
You can claim a proportion of the cost of gas and electricity back from your tax bill (it’s called being tax-deductible or an allowable expense).

There is an official formula from HMRC to work out the right proportion of business to personal expenditure. It’s based on the size of your home, whether you have a designated office, and how many hours from home you work.


2. Home Working Expenses: Water
You can claim a proportion of your water costs off your tax bill if you have a water meter. You use your business/personal calculation from HMRC’s formula.

Bills based on water rates can’t have a proportion claimed back as the amount you use makes no difference to the amount charged. Make sense?


3. Home Working Expenses: Rent/Mortgage
Rent
You can claim a tax deduction on your rent according to HMRC’s formula. However, flat shares, combined rent/bills arrangements, your partner shares/pays the bill etc, all complicate it and you may benefit from a professional looking at your situation.

Mortgage
You can claim a deduction on your mortgage interest (not the mortgage).

Most of my clients don’t claim, as it’s more important to them not to have a question mark over their house being a business property, which can happen if you claim a business deduction on your residential property. It’s up to you though.

4. Home Working Expenses: Landline Phone
This is where it gets 20th century.

The cost isn’t an allowable expense as HMRC argue you have the phone for personal reasons, unless you have a business contract.

You can claim the cost of business calls. It can be easier to use a service like Skype or a mobile for all outgoing business calls, so it’s all tax-deductible. Adding up all those calls on a landline bill can take more time than it’s worth.


5. Home Working Expenses: Internet
How and whether your internet is a tax-deductible expense or a home working expense depends on your business and personal situation.

Examples where you may be able to justify the full internet cost because you must use the internet to deliver your service:

Blogger
Social media manager
Coach delivering services worldwide (using telephone or mobile is not cost-effective)
Video and film (you need to use the internet to deliver files to clients)
Photographers (clients expect to see their photos online)

For most of us, the internet is used for marketing (websites, social media) and communications. You can use the working from home formula to calculate the percentage you can claim.
Other options which are fully tax-deductible are to have a business internet contract or use mobile wi-fi for your business wifi.

6. Home Working Expenses: Contents Insurance
You can claim a proportion of your home contents insurance if you include items used for business on it (assuming that doesn’t break the terms of your insurance policy).

However, buying a separate insurance policy for your business capital items is a good idea if you have more than just a laptop. If you do this, it stops being a home working expense and is a tax-deductible ’normal’ expense. 


7. Home Working Expenses: Office Furniture & Equipment
These are usually capital items (assets: anything that will last more than a few years) and not expenses.

They need to go in a different place on your tax return, but if allowable, they are tax-deductible as long as you don’t go over the annual limit. The limit changes so check every year.
Your desk and chair and your lamp are allowed capital items, a new carpet isn’t.

8. Home Working Expenses: Repairs
You’re allowed the cost of repairs.
Depending on what the repair is, you can either claim the whole cost or part of the cost according to your working from home formula calculation.


9. Home Working Expenses: Cake
In my view, cake is essential to home working. We work as hard as anyone in an office – or harder a lot of the time – but that doesn’t mean we don’t enjoy easy kitchen access.
Unfortunately, cake is not tax deductible, as it’s food/ entertainment. Don’t let that stop you though.

(Fabulous exception: if you’re a blogger and you genuinely made cake to post about, eating that cake is ‘incidental’ (HMRC’s word) so it’s a tax-deductible expense).


Can I Do Something Simple Instead?
Yes, you can. There is a flat rate you can claim. This can be the simplest option for freelancers living in flat shares, if your partner/someone else pays the tax-deductible bills or your rent agreement combines rent and bills.

Depending on your situation, it can also save you money and time to claim the flat rate rather than the working from home formula calculation.

Bear in mind though, that for most work-from-homers, it’s worth the hassle of the calculation as the difference can be a few hundred pounds. This is especially true if you live in a tiny flat.


Any Home Working Expenses Tips?
Home working expenses is the area most business owners miss out on. Pay them some attention as not only can you save money, you need to stick with the same method of claiming until you move.

Rosie Slosek is a tax return coach for cake-loving freelancers in the UK. She has been known to wear sparkly shoes to work from home and has a good set of working from home boundaries.

Special offer: Work From Home Wisdom readers can download Rosie’s Essential Guide to Home Working Expenses ebook as her free gift (worth £3.97). Use code wfhw.