Many of us will be working from home at the moment. This will incur extra expense, such as lighting and heating, water, telephone and many other costs.
These costs can be claimed against your tax bill to reduce your liability, and there are three ways of doing so. I will talk you through each of them briefly here and you may be able to determine which is best for you, but if you need any further infomation at all feel free to get in touch.
If you are self-employed one way to do this would be to find a reasonable method of dividing your costs. HMRC’s example of these workings is below. This will obviously require you to review all of your bills and calculate the portion of your home that relates to your office space – if that space is used for more than just working then you will need to apportion that again.
You have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).
If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).
HMRC also have standard allowances for self-employed individuals which make it easy to calculate a flat rate that you can claim each month. This saves you hunting for all of your invoices and apportioning the usage as in the previous method. If the number of hours in one month goes up or down, then you can claim more or less for that one month accordingly. These rates can be added to your self-assessment tax return which will reduce your tax liability. The current rates are listed in the table below.
|Hours spent working from home each month||Flat rate per month|
Obviously which of these two methods that will be most beneficial to you will depend on your exact costs and number of rooms in your property. It might be worth calculating one month using both methods and seeing what the outcome is. Often, there will be minimal difference and therefore using the simplified approach will save time.
Both of these methods are looking at the property costs. Things such as telephone and internet are not included, and you can calculate the business proportion of those bills based on approximate usage.
One thing that many people may not know is that if your employer requires you to work from home then you can claim an allowance of £6 per week. There are two ways to do this: your employer could pay you £6 per week tax free, or you could claim £6 per week as a tax deduction. If you complete a self-assessment return, you can simply add this on to your expenses against that income. If you do not (as many employed people will not have the need to do so) then you can fill out a P87 form online to make this claim. This rate was £4 per week before 6 April 2020.
Please note that this must be that your employer requires you to work from home. If you do so voluntarily, you cannot claim this allowance. You also would not need to provide any backup to substantiate this claim.
If you run a limited company, this may be the best way to pay yourself this allowance as you will also save Corporation Tax.