What home office expenses are tax deductible and how much can I claim?

If you have a business and work from home, you want to be able to claim the expenses associated with this business on your tax return. Work from home tax deductions can be a little confusing to get your head around.

Usually, if you use something for your business, then you can claim that expense back. Life is rarely simple though, and neither are tax returns, so there are a few things to think about when working out your tax deductions.

We’re here to tell you which home office expenses you can claim for, and how much, to help you out.

So, which of my home office expenses are tax deductible?

The working from home expenses which you can claim for are as follows:

• Mortgage
• Rent
• Council tax
• Light and heat
• Telephone and broadband
• Property repairs
• Water
• Your vehicle (including insurance, repairs, breakdown cover and fuel)

How much can I claim?

 There are two basic methods to calculating your tax deduction, which are:

1. Analysing the costs method

HM Revenue & Customs (HMRC) states that you need to apportion the running costs of your home on a “fair and reasonable” basis. This means splitting it fairly between the private element of the cost (the part that relates to your personal living costs) and the business element.

Depending on the type of your business, how much you can claim for will vary.

To proportion your home expenses accurately, HMRC has suggested guidelines to follow:

• Area: What proportion in terms of area of the home is used for business purposes?
• Usage: How much is consumed? This is appropriate where there’s a metered or measurable supply such as electricity, gas or water.
• Time: How long is it used for business purposes?

So, if this is your method of choice, you simply need to work out how many rooms you use in your house for business, and then calculate how much time you spend in the rooms.

It’s best not to use a room solely for business, and no personal activities. Using a room for dual purpose will mean if you sell your house, capitals gain tax will be due on that room. You could use your office also as a music room, keeping your guitar and piano in there as evidence for any visiting HMRC inspectors.

For example:

Say you have four rooms in your home, one of which you use only as an office.

Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by four).

If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by seven).

2. The simplified expenses method

This simplified method was provided by the government to “combat the complexity” of working out your home office expenses.

Basically, you calculate your allowable expenses using a flat rate based on the hours you work from home each month. It’s easier as you don’t have to work out the proportion of business and personal use – but may not save you as much on tax.

The amount varies with the number of hours you work per month at home, as follows:

• 25-50 hours: £10 per month
• 51-100 hours: £18 per month
• 101 hours or more: £26 per month

For example: 

If you worked 40 hours from home for 10 months, but worked 60 hours during two particular months:

10 months x £10 = £100
2 months x £18 = £36

Total you can claim = £136

It’s important to note that this flat rate doesn’t include telephone or internet expenses.