Even if you are a dab hand at claiming expenses, here’s a refresher by Suzanne Mucci on what you can claim, how you can claim it, and how to keep track of your expenses.
Now home working has become the new norm for many of us, it’s important to be aware of the expenses you might be able to claim for. From utility bills to extras for your home office, here’s a quick guide to what’s allowable and how to calculate your costs.
What can I claim for?
Because you’re using your home as an office, HMRC allows you to claim for a proportion of your household expenses, like:
- Council tax
- Mortgage interest or rent
- Internet and phone bills
To calculate the proportion, you need to find a reasonable way of dividing your costs between business and personal use. A typical way is to work out how much of your home you use for business – so if, for example, you have four rooms in your house, and you use one to work in, you’d claim a quarter of your costs as allowable business expenses.
There’s no rigid formula for this and HMRC are happy to leave it up to your judgment. But bear in mind you’ll need to justify your calculations if they decide to come calling.
As well as bills you can claim for office equipment like:
- Printer ink and cartridges
- Computer software your business uses for less than 2 years
- Computer software if your business makes regular payments to renew the licence, even if you use it for more than two years
How to claim if you’re a sole trader
If you’re a sole trader, you can avoid the hassle of calculating your business-related costs and use simplified expenses instead. This is a flat rate set by HMRC that covers most of your home working expenses.
The rates are based on how much time you work from home each month:
Hours of business use per month
Flat rate per month
25 to 50
51 to 100
101 or more
Note these rates only apply to things like utility bills and rent. For phone and internet use, you still need to work out your actual costs.
You may prefer to work out your actual costs, particularly if these are likely to result in bigger tax savings. If so, you’ll need to calculate the business proportion as mentioned above and be sure to keep records of your expenses.
How to claim if you’re a limited company
If you’re a limited company, you can also claim a proportion of your household costs as business expenses. The simplest way is to use HMRC’s flat rate of £6 a week for the 2020/21 tax year. You don’t need to keep receipts and you simply include it alongside any other expenses you’re claiming.
If your costs are likely to be significantly more than this, you can work out the actual proportion attributable to your business and claim for this instead – but be prepared to show your calculations are reasonable.
You might also be able to rent your home office to your company and claim it as an expense. This requires a formal rental agreement to be set up between you as the homeowner and your limited company, to avoid the rent from your company being classed as additional salary.
Recording your expenses
If you’re claiming the flat rate for home office expenses, you’re unlikely to be asked for proof of your costs. However, you may have to justify anything else you’re claiming for – and it’s always a good idea to record your expenses anyway. You can log everything in a simple spreadsheet or invest in one of the many apps out there that help you organise your expenses.
Don’t forget to keep receipts for anything you’ve had to buy in order to set up your home office, like a desk, chair or headphones – these can all be claimed for.
Accurate records make it much easier to fill in your tax return and HMRC could ask questions up to six years after filing it – so make this a time to start good habits. Your accountant will love you for it.
This information is intended as a guide. For specific advice, please speak to your accountant.