FREE Business banking forever
With Abbey you can enjoy free day-to-day business banking, forever! Call us now on 0800 085 3099 or click here to find out how.

Running a home office - can you claim on expenses?

print  e-mail 

As more and more people choose to work from home, the question of how you can reclaim any home office expenses is frequently asked.

The general Inland Revenue rule for claiming tax relief on business expenses is that you can only reclaim costs that have been 'wholly and exclusively' incurred in connection with your trade.

If your personal and business expenses are 'mixed', you can only deduct the business element if it can be separately identified. Typically, the Inland Revenue will allow some 'home office' claims as long as they have been calculated on a reasonable basis, and that such claims are not excessive. You should therefore take great care when working out your home office expenses, preferably with the help of an accountant.

Some accountants suggest calculating the proportion of your home used for business purposes (either as a fraction of the total number of rooms, or by floor space), and claiming back that proportion of your general household expenses (e.g. electricity, gas). Others suggest only claiming a fixed £2 per week expense to avoid attracting the attention of the tax authorities, unless you have a significant claim to make.

HMRC have provided some examples of what fixed costs can typically be offset against tax, including mortgage interest - see our dedicated article here.

Potential Pitfalls - A Grey Area

  • If you make it clear that part of your home is dedicated for business use, this may attract the attention of the local authority Valuation Office, who may be keen to apply business rates. If that space is for "mixed use", i.e. personal as well as business use, then business rates should not be applied.
  • If you sell your house, having claimed that a proportion of it has been used for business purposes, accountants have often warned in the past that this may have Capital Gains Tax implications for the sale. However, HMRC has recently clarified (June 2008) that this is not the case, and morgage interest can be offset against your tax bill where relevant. See our article here.
  • Insurance and Mortgage companies will often ask you declare that your home is used solely for residential purposes (same goes for tenancy agreements), but if you're running a small home office, and take out business insurance for your business-related items, you should be OK.
To avoid triggering an Inland Revenue investigation when you make your claim on your self-assessment form, you must be sure that your claim is genuine and necessary. You should only claim if the amounts involved are significant and if you genuinely do use a proportion of your home solely for running your business. You should be prepared to provide full calculations for any expenses claimed.

Above all, check with your accountant first, as the rules are complicated.

For essential tax updates, subscribe to our small business newsletter.

Posted March 14, 2006

Latest articles in Business Tax
 
How to make the most out of trading loss relief
Under concessions offered in the Finance Bill 2009, trading losses for businesses can now be carried back up to a maximum of three years. How the rules work. [October 13, 2009]
 
Claiming travel expenses from home to work - the rules
Whether you are a limited company director, or a sole trader, this article looks out how expense claims for home to work travel are treated by HMRC. [October 9, 2009]
 
How to manage Corporation Tax during a recession
Here are some useful tips to help small businesses manage their corporation tax liabilities during the downturn. [September 18, 2009]
 
How to register your company for corporation tax
One of your first duties as a limited company director is to register your company to pay Corporation Tax. How the registration process works, including which forms you need to complete. [August 5, 2009]
 
Tips to run your business finances efficiently
An unbelievable amount of money is thrown away every year by small businesses, simply because they are not running their finances efficiently. Here are some useful tips that if not applied, at best cost you and your business money, and at worst can cause your company to crash and burn. [July 20, 2009]
 
Annual PAYE and NIC tax deadlines for small businesses
The key small business tax accounting deadline dates - including information on National Insurance contributions (NICs), PAYE and self-assessment tax returns. [June 2, 2009]
 
Guide to National Insurance and NICs for small businesses
National Insurance guide for self employed people and limited company directors. Includes overview of the NIC classes, and current rates. [June 1, 2009]
 
PAYE - Overview of Pay as You Earn scheme
An overview of PAYE (Pay as You Earn) - the familiar scheme operated by HM Revenue & Customs to take income tax from employees as they earn it [June 1, 2009]
 
Corporation Tax - What it is and how it applies to your company
Corporation Tax is essentially a tax on your company’s profits. You have to work out your own tax liability, pay that tax, and ensure you deliver all required information to HMRC on time. [May 21, 2009]
 
Guide to new HMRC tax penalties regime from April 2009
A new, tough, HMRC penalty regime came into play on 1st April 2009. Individuals and business owners can now face penalties of up to 100% for deliberately underpaying tax. An overview of how the new rules work, and what to expect if you get things wrong. [April 3, 2009]
 
P35 Employer Annual Return - file online and collect a £75 cash reward
HMRC is urging small business employers to file their 2008/9 Employer Annual Returns online this year, and is providing the incentive of a modest cash bonus. [April 1, 2009]
 
2009 tax planning check list if you're trading at a loss
If you are self employed and have recently experienced a profit drop, or are trading at a loss, you should carefully consider your current trading position and ensure you maintain a healthy cash flow. Some tax and accounting tips to help ensure a favourable tax position. [February 6, 2009]
 
Rewarding staff with bonus shares - Tax implications
With many small businesses struggling to meet existing commitments, many employers will be thinking of alternatives to paying out any cash bonuses to staff this year. This article looks at how gifting shares could be a sensible alternative, along with the legal and tax implications of doing so. [January 8, 2009]
 
Guide to the main HMRC payroll forms for small businesses
Our summary of some of the key HMRC forms companies will get to know after setting up a new business. Including Forms P45, P60, P11D, P35 and Self Assessment. [October 30, 2008]
 
Sole trader self assessment tax guide
A guide to sole trader taxation; what you have to pay tax on, how much tax you should pay, and how to make the self assessment process easier. [October 23, 2008]
 













Our Partners
Key Services
Useful Guides