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Use of home office

Use of home office: all your options

use of home office: all your options explainedThis blog explains the two methods you can use and gives you a simple and easy to use template to maximise your home office claim.

Using our free templates and expertise, our clients have saved £1,000′s of tax.  Don’t miss out and contact us today to get your free, no obligations templates!

The two methods

1.)  Flat Rate

If you only work from home occasionally you can claim an expense of £4 per week (or £208 per year) without having to keep any receipts.

This method is recommended if you only work from home for short periods of time or only doing basic business administration and is particularly designed to cover additional costs such as heating and lighting for the work area.

2.)  Company Rents Space

If you regularly work from home and have a separate room dedicated to your “home office”, you can claim a lot more than the flat rate by having a simple rental agreement between your limited company and yourself.

You can claim more than the flat rate £208, but the amount should not exceed a commercial “arm’s length” level.  This “rent” will reduce the corporation tax your company will pay.

What types of costs can I include to calculate my rent expense?

You calculate the rent expense by looking at which extra costs you have personally incurred in running your “home office”.  The main (but not all) costs that can be claimed are:

Fixed costs:
  • Home insurance (provided no separate business insurance)
  • Council Tax
  • Mortgage interest
  • Home rent
  • Repairs and maintenance
Running costs:
  • Cleaning
  • Heat, light and power
  • Telephone
  • Broadband
  • Metered water charges
How to calculate the rent expense claim?

The claim should be based on actual bills incurred, the area the room occupies and the time it is used as an office.  You must keep a record of actual bills and a calculation of the rent expense claim.

We recommend the following steps to maintain a simple and logical calculation:

  1. Obtain the costs under each category that have been incurred
  2. Calculate the total floor space in your home (ignoring corridors, bathroom and kitchen)
  3. Calculate the space that your office occupies within the home
  4. Adjust for the amount of actual hours the office is in use in a day

We have a free calculator that does all this within 60 seconds – just sign up to our newsletter us for your free copy!

Is there a personal tax impact?

The rental income will need to be included as property income on your self assessment tax return.  The good news is that as long as the rent you charge is a reimbursement of costs you have incurred for that room in your home, the rental income and costs will be equal and opposite, therefore there will be no additional personal tax due.

Will I lose my Private Residence Relief when I sell my home?

As long as you do not use the room purely just as an office you will not lose this relief when you sell your home.

Simply include a clause in the rental agreement which states the hours the “home office” is rented out, e.g. 9am – 5pm.

Business rates

Check with your local council to see if you need to pay business rates.  In many circumstances, councils do not apply business rates for home offices.

Where can I get a home office calculator and rental agreements?

Simply sign up to our newsletter to receive your free copies of the home office calculator and the rental agreements.

Any questions? Speak to one of our friendly accountants on 020 7969 2879.

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About Hardeep Mangat

Hardeep is a down to earth accountant, who loves helping contractors, freelancers and small businesses save tax and make more profit. He also has a particular interest in IR35 . Hardeep attended University College London and is a Chartered Certified Accountant, who previously worked for Credit Suisse Investment bank and at a local accountancy practice.

Hardeep on Linkedin and Google+

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