Tax deductible home office expenses and how much can I claim?
If you’re running a business or working from home, you wish to have claim for the expenses related to the business on your tax return. Work from home tax deductions can be quite confusing to get your head around.
Normally, if something you use for your business, then you wish to claim that expense back. Life is hardly easy though, and neither are tax returns or year end, so there are certain things to think about when working out your tax deductions.
Which of my home office expenses are tax deductible?
You can claim work from home expenses which are as follows:
- Council tax
- Telephone and broadband
- Light and heat
- Property repairs
- Your vehicle (including insurance, repairs, breakdown cover and fuel)
How much can I claim?
The two basic methods are there to calculate your tax deduction which are:
Analysing the costs method
HMRC describes that you’re required to allocate the running costs of your home on an equity and reasonable basis. This means dividing it fairly between the private component of the cost (the part that associates your personal living costs) and the business component.
Based on your business type, how much you can claim for will differ.
To share your home expenses accurately, HMRC has prescribed guidelines to follow:
- Area : What proportion in respect to area of the home is employed for business purpose?
- Usage : How much is used? This is suitable where there’s a measurable or metered supply such as gas, electricity or water.
- Time: How much duration is it used for business purposes?
If this is your procedure of choice, you just have to work out how many rooms you employ in your house for business, and then start calculating how much time you need to spend in the rooms.
It’s great not to use a room only for business, and no personal activities. Using a room for dual objective will mean if you’re selling your house, capitals gain tax will become due on that room. You could use your office as a music room, keeping piano and guitar as a constructive proof for any visiting HMRC officials.
Let’s say you have five rooms in your house, one of which you use only as an office.
Your bill for electricity for the year is £500. Suppose all the rooms in your house use same electricity amounts, you can claim £100 as allowable expenses (£500 divided by five).
If you’ve worked only one day a week from home, still you can claim £14.29 as allowable expenses (£100 divided by seven).
The method for simplified expenses
This simplified method was given by the government to “encounter the difficulty” of working out your home office expenses.
Typically, allowable expenses are calculated by using a flat rate subject to the hours you work from home every month. It’s simpler as you don’t need to work out the proportion of personal and business use—but won’t save you as much on tax.
The amount changes with the number of hours you put to work per month at home are 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’ve been working from home 50 hours for 10 months, but worked 70 hours during two specific months:
10 months x £10 = £100
2 months x £18 = £36
Your total claim = £136
It’s essential to note that this flat rate doesn’t involve internet or telephone expenses.
The procedure of claiming home office expenses can be of utmost inconvenience for business owners. If you require support in completing and filing your tax return, then you can contact one of the best accountants in London for helping you out with.