Home working expenses for the self-employed

Working for yourself can be a great option for the modern professional and comes with a variety of perks, such as a flexible approach to work and a sky’s the limit attitude to earning money however you see fit. But, despite the benefits, it’s not just positives when it comes to the elephant in the room. We are of course talking about tax.

Whilst there are some great tax incentives to make you consider striking out alone in the big wide world, some additional incentives are sometimes unclear or may seem confusing. That’s where we come in.

One such relief comes in the form of the “use of home”.

Self-employed individuals working from home can claim a deduction for “use of home”. The following two methods are used to calculate the level of relief available:

  • Flat rate deduction
  • Proportion of actual costs

We’re going to break these down for you so you can see whether you might be able to get a little something back, and how much you could be entitled to.

What is the flat rate deduction?

The flat rate deduction is based on the number of hours an individual spends ‘wholly and exclusively’ working on core business activities from home. The level of relief available is as follows:

  • 25 hours or more @ £10 per month
  • 51 hours or more @ £18 per month
  • 101 hours or more @ £26 per month

In addition to the flat rate deduction, it is also possible to claim a deduction for certain fixed and variable costs.

What proportion of actual costs can I claim?

Rather than claiming a flat rate deduction, self-employed individuals can claim a proportion of actual fixed and running costs of their home.

Fixed costs:

Fixed costs include council tax, home insurance and mortgage interest. To calculate the amount allowable, it is necessary to calculate a reasonable adjustment to the costs based on the time spent working from home and the area in the house this relates to.

Variable costs:

A proportion of telephone, broadband, heat and light costs are also an allowable deduction for tax purposes. An adjustment will need to be made to these costs for any private use.

Can I claim relief for anything else?

It is possible to claim relief in respect of the purchase of some furniture and equipment. The costs will need to be reviewed to determine whether capital allowances should be claimed. If any items are also used for non-business purposes, an adjustment will be required to account for any private use.

What other factors should I consider?

Capital Gains Tax implications:

When an individual disposes of their main home Principal Private Residence (PPR) relief is available to claim against the gain. If their home is used exclusively for business purposes i.e. the office does not have any private use, PPR relief will be restricted and part of the gain will be chargeable to capital gains tax.

We understand that tax can be confusing, but whether you’re just starting out in your trade or a budding entrepreneur, it’s easy to recognise that every little helps when it comes to these incentives.

If you would like to discuss the relief options available to you or need help with any aspect of self-employment tax implications, please don’t hesitate to talk to our team for advice.

Author: Shonagh Macdonald, Manager, Personal Tax