It may have been new for many when lockdown began last year, but working from home has definitely become more common for many people. Are you aware of what you're entitled to when you’re self employed and working from home?
There are many expenses which go unnoticed and forgotten about when it comes to working from home. Working from home may be a cheaper option than having separate premises but you need to be aware of what you are entitled to claim to get the most out of your cash flow.
Whilst running your business from home you are entitled to claim for a proportion of the following bills:
- Utility Bills (Gas and Electric)
- Wifi/Internet connection/Phone
- Council tax
- Interest relating to mortgage payments
By deducting the above expenses you can save a significant amount on your tax bill, so it’s important not to forget your entitlement.
You may be saving money on business premises by working from home, but the cost of your utilities such as gas and electricity will increase due to the extra amount of time you are spending at home. Even more so in the winter months when your heating is on more. Obviously you can’t claim for the whole bill as it’s not all business related, but you can claim for a proportion of each bill. Water can only be claimed for if your business requires you to use water for example you have a dog grooming parlour from home.
There are two ways to calculate your utility expenses, Simplified expenses (Flat rate) or by another reasonable method such as; dividing the actual cost by the amount of rooms in your house and multiplying by the amount of rooms you use for business use or by the time you spend working from home.
An example of this is you have 5 rooms in your house, but only one of which you use as an office, for business use.
Your electricity bill is £500 for the year, so you would divide £500 by 5 and multiply by 1, so the amount you could claim would be £100. However, if you only worked 2 days from home you would divide the total amount (£100) by 7 (days) and multiply by 2 which would be £28.57.
The Flat Rate or Simplified expenses option would work as per below:
This works a little differently to utilities. It’s not based on the amount of rooms you use it for. You need to determine the percentage you use for both personal and business use.
You are entitled to claim a proportion of your council tax bill, but you must make sure that you don’t fall under the category of ‘Business rates’. If you are only using one room in your house and working alone, then business rates won’t apply. They do apply for instance if you employ other people to work at your property. To find out more about business rates visit the Government website.
Rent and Mortgage expenses
You can also claim a proportion of the costs of your rent or mortgage interest. You must also consider that if you use any part of your home solely for business use and then sell your home at a later date you will be liable to pay capital gains tax. Remember you can’t claim the full amount of your mortgage, just the interest only. However, if you are renting you can claim for a proportion of the monthly rent.
We hope this information has been helpful to ensure that you don’t miss out on those vital expenses. Remember every penny counts when running a business! If you need any support with your business expenses please get in touch, we would be more than happy to help.