An increasing number of people are working from home and this is a common question we get asked. So here are a range of answers for you to ponder on…
General household costs
If you are self-employed you may be able to claim a proportion of household costs for things like heating, electricity, council tax, mortgage interest or rent, internet and telephone use. You will need to find a reasonable method of dividing costs relating to the business.
If there is only minor use, HMRC may accept a reasonable estimate without detailed paperwork using these flat rates,
- £10 per month for 25 to 50 hours of business use over the month
- £18 per month for 51 to 100 hours of business use over the month
- £26 per month for 101 or more hours of business use over the month.
Using these flat rates means it is not necessary to work out the proportion of personal and business use for the home.
An important thing to note is that this flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these expenses as well.
Unfortunately no capital allowances are available on the costs of home office conversion and garden pods. However, things like wiring and office furniture are allowed.
Be careful of CGT
Using a room exclusively for business use can mean that Capital Gains Tax Principal Private Residence Relief (CGT PPR) will not apply on sale of the home. Occasional and minor personal home use of the business room will not make it qualify for this relief.
If the room is used partly for business purposes and partly for home CGT PPR Relief will qualify in full.
This is something to think about when you are making your tax relief claims.
There are 2 groups,
- those who have to work at home and
- those who choose to work at home.
Those who have to work at home
Relief can only be allowed for the additional cost of gas and electricity consumed while a room is being used for work, additional costs of water and additional costs of business telephone calls.
Where it is not practical to calculate these extra costs, HMRC allow a flat rate of £18 per month for monthly paid employees (£4 per week for weekly paid employees) to be made without justification, detailed records and paperwork. Business telephone calls are not included in this flat rate so additional relief can be claimed for this.
Those who choose to work at home
For those who choose to work at home then there may be an tax exemption for certain reimbursements paid by there employer. Employers can make tax exempt payments to employees for the additional household expenses incurred in relation to the work area of the home. Costs that are the same whether or not you work at home cannot be included. To qualify, employees need a home working agreement where they regularly work at home.
I hope this clears up any questions you had on this subject.