One of the really great things about being self-employed is the opportunity to work from home. It’s this sort of flexibility that inspires people to start their own businesses in the first place; it’s especially good for those who don’t find the nine-to-five office roles suitable, such as stay-at-home parents or those living with disabilities.
Depending on the work you do, you might be able to claim expenses back for using your home as an office, either by claiming for office equipment like computers and furniture, or even renting part of your home to your company. HMRC rules are complex, however. We’ve broken them down so it’s easy to see what you can and can’t include in your expenses when working from home.
I use the office in my house to work in – what can I claim?
Working through a limited company means if you work from home, HMRC allows you to claim £4 each week without keeping any detailed records. The other good news is that HMRC doesn’t believe this to be a ‘benefit in kind’, which means you won’t have any tax to pay on this through your Self Assessment.
As always, there are rules: you must be able to prove that you regularly spend time doing your job in this office space, so you can’t just use your home office for a small bit of administration while the majority of your work is done on-site or at client offices.
Equipment that’s necessary and essential for your professional duties will receive tax relief. You may also claim reasonable relief towards the cost of equipping/furnishing an office, (for example chairs or bookcases).
Renting your office to your business
If you’re running a limited company, you might be able to rent your personal work space in your home to your limited company and claim that as an expense.
You’ll need to declare these earnings on your Self Assessment, so they’ll be subject to further taxes after you’ve deducted your expenses. There’s always further rules though – you must:
- Own the property
- Make sure any amount over £208 is classified as rental expenses
- Create a rental agreement between yourself and your limited company
- Make sure that the rental agreement states that the rent is specifically for use of the office at certain times of the day, and nowhere else within your house
- Make sure the rent you set is reasonable
I have to add this rent to my Self Assessment, right?
Yes, you’ll need to include any income from renting your office to your limited company in your Self Assessment. You can make this tax-efficient by ensuring you claim for all the correct expenses, such as mortgage interest, building insurance, and repairs/maintenance, as well as electricity or gas.
If you charge your limited company more than the expenses incurred in running the property, you’ll have to pay Income Tax on the additional amount.
Use of Internet when working from home
In order for expenses to fall within the “wholly and necessarily” rules, the internet connection must be purchased in the name of your limited company.
You normally can’t claim any internet costs as this will include personal use. However, if you work at home and have a rental agreement with your business, this expense can be part of the rental calculation.
The only exception to this is if there is a separate broadband line that runs into the office portion of the home to provide internet access solely to that office – only then can you claim 100% of the internet costs.
How do I claim for business mobile telephone calls?
To claim full relief on your mobile telephone bills, you’ll need to ensure that a contract is set up between your company and the service provider. This way you can gain full tax relief on the cost of the phone and its use.
Any personal calls on the mobile are treated as a tax-free benefit in kind, so are a consequence of an allowable business expense and will encounter no tax – or need reporting on your P11D.
If you take out a mobile phone contract in the name of your business, you’ll also receive Corporation Tax relief on the entire costs of your phone bill. If the entire balance of a mobile and its contract is £1,000, this would be recorded as an allowable expense in your accounts. Your taxable profit would fall and the amount of corporation tax you pay would reduce by £190 (figures correct for 2018/19 tax year). The personal use included in the bill would be classed as a tax-free benefit in kind, so you won’t be taxed on it personally.
The one caveat with signing a phone contract in the name of your company is that you’ll probably have to use one of your phone provider’s business tariffs, which may prove slightly more expensive – but any increase in cost will probably be covered by tax savings.
We don’t recommend claiming for business use on a personal mobile contract as none of the tariff can be claimed on the basis of paying for minutes, because these minutes are usually included within the contract and have no identifiable cost.
The key question to ask yourself at every stage is: do I genuinely use it for business purposes? And can I prove it?
As ever with such issues, if you’ve got any doubts, a qualified accountant will be able to help.
All Crunch customers get unlimited access to a team of expert accountants who can provide the answers. We also have a free downloadable guide to Business Expenses for you to download and keep.