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 HMRC 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, HMRC 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 £3 per week expense to avoid attracting the attention of the tax authorities, unless you have a significant claim to make.
Potential pitfalls – 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, in June 2008, HMRC clarified that this is not the case, and mortgage interest can be offset against your tax bill where relevant.
- 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 are running a small home office, and take out business insurance for your business-related items, you should be OK.
To avoid triggering an HMRC 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 more help and advice on related issues, some of our other guides include;