Self-employed individuals are those who relinquish the nine-to-five traditional office job to ride solo. In addition to the multi-faceted benefits accompanying self-employment, working from home as a self-employed individual is also a perk that offers numerous benefits, including flexibility and reduced commuting costs. This blog elaborates on what can I claim for self-employed working from home and explains the simplified expenses method to reduce your taxable profit.
Notably, the work-from-home arrangement is a prime flexibility impelling people to venture into self-employment. However, similar to any other business structure, self-employed individuals are not exempt from tax, even when they are calling the shots while working from home.
A work-from-home setup brings tax obligations that must be correctly handled to ensure compliance with HMRC regulations. It is noteworthy that the UK tax system provides self-employed workers with various tax reliefs and allowances to offset expenses incurred while working from home.
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What can I claim for self-employed working from home?
The primary rule you must remain mindful of when working from home is that you must be able to justify that you regularly spend time doing your job in this office space.
It signifies that you cannot just use your home office for trivial administrative tasks while executing the majority of your work done on-site or at client premises. In view of that, the following are the tax-deductible expenses for you to learn what can I claim for self-employed working from home:
Utility bills:
To begin with, you can claim a portion of home utility bills, such as heating, electricity, and water, provided a part of the home is used for business. It must be asserted here that the amount must be proportionate to business use by taking into consideration the number of rooms used and hours worked.
Rent or mortgage interest:
If you are renting a portion of your home to your company, a percentage of the rent can be claimed. Notably, the claim should be based on the proportion of space used for business.
Moreover, you can claim the amount via HMRC’s flat rate amount (which is discussed below) or a rental agreement. Similarly, if you are the owner of the home, you can only claim the interest part of the mortgage, not the repayment.
Internet and phone bills:
Another expense that is tax-deductible when learning what can I claim for self-employed working from home is internet and phone service expenses. In the event you use your home internet or phone connection for business and personal activities, you can only reclaim their business-related portion.
Also, your internet connection can be included in your rental calculation, given that you have a rental agreement with your business.
Likewise, if you enter into a contract between your company and the service provider, you can be eligible to claim full compensation for the cost of the phone and its use. This allows you to receive full tax deductions for the purchase of the phone and its use.
Further, since personal mobile calls are recognised as a tax-free benefit in kind, they are considered an allowable business expense and will not be taxed or reported on your P11D. For instance, if you are a sole trader, your phone service would reduce your sole trade profits, which in turn will bring down your personal tax bill.
It is because the personal use of the phone is a tax-free benefit in kind; as a result, you will not be obligated to pay tax via your self-assessment tax return. It is pertinent to mention that keeping separate business phone and internet connections makes it easier to claim 100% of the costs.
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Council tax:
You can claim a proportion of council tax depending on the amount of space used for business. Nevertheless, this does not apply if you will only carry out small or minor business activities at home.
Since this guide revolves around the allowable expenses for the self-employed when they work in a home-based set-up, there are other various expenses they can claim back in order to trim down their tax bill. Are you interested in learning more? Read our following guides to learn more:
How to save taxes as a self-employed worker in the UK?
What are allowable expenses for self-employed people in the UK?
Office equipment and supplies:
Office equipment and supplies include the following when you are analysing what can I claim for self-employed working from home:
- Furniture includes desks, chairs, bookshelves, etc.
- Computers, printers, and other electronic devices vital for the running of the business.
- Stationery, software, and business-related subscriptions.
Furthermore, the office items can also qualify for capital allowances if they have long-term use. If you want to learn more about capital allowance, read our following guides to gain more information:
What is the capital allowance for self-employed workers?
How to claim capital allowance for self-employed workers?
Repairs and maintenance:
If repairs are specifically for the business space, such as fixing a home office window, the relevant cost can be fully claimed. Similarly, general repairs for the home (e.g., roof repairs) can be partially claimed based on how much they are of business use.
Business Insurance
Fortunately, business insurance costs, including professional indemnity insurance, public liability insurance, or business contents insurance, are claimable as allowable expenses as long as they are essential for your self-employed work. On the contrary, household insurance is not deductible unless you have paid an additional premium for business use.
If you have morphed part of your home into an office, travelling to meet clients or attending business-related events is inevitable. Hence, the relevant costs are deductible, including:
- Public transport fares.
- Fuel, vehicle maintenance, and mileage allowance, i.e., 45p per mile for the first 10,000 miles, 25p thereafter can be claimed.
- Parking fees.
- Accommodation and meals if travelling overnight for work.
In contrast, you cannot claim personal commuting expenses.
Software and tools:
There is yet another significant expense you might incur when figuring out what can I claim for self-employed working from home. Undeniably, you will need HMRC-approved software to handle different aspects of your business, like accounting, designing, and managing.
Thus, if you use specific software to run your business, such as:
- Accounting software (Xero, QuickBooks).
- Design tools (Adobe Suite, Canva).
- Project management tools (Trello, Asana).
These are classed as allowable expenses considering they are crucial for conducting your business operations.
Professional fees accountancy costs:
Dealing with the financial affairs of your business might not appeal to you. To resolve this issue, you can pursue legal and financial services by hiring a proficient accountant to take care of your tax obligations on your behalf. More importantly, the costs of professional and accountancy services can be included in your tax-deductible expenses.
How to claim home-based office expenses?
After learning what can I claim for self-employed working from home, you must also learn how to claim those tax-deductible expenses. The following steps expound on how you can calculate and then claim the allowable expenses in a home-based office:
Keep accurate records:
First and foremost, you must maintain receipts, invoices, and bank statements for all expenses you claim since it will help corroborate or strengthen your claims if HMRC ever requests proof.
Choose between actual costs or Flat Rate to calculate the expenses:
Next, you need to decide whether you want to calculate the exact business proportion of your expenses or go for HMRC’s simplified flat-rate method. If you do not want to calculate exact expenses, HMRC offers a flat-rate system for home-based self-employed workers.
Further elaborating, the flat rate method involves calculating your allowable expenses using a flat rate based on the number of hours you work from home every month.
It implies that you will not have to calculate the percentage of personal and business use for your home, such as how much your utility bills are for business. Additionally, the flat rate does not include telephone or internet service costs. Instead, you can claim the business portion of these bills by calculating the actual costs.
It is worth highlighting here that you can only use simplified expenses if you work for 25 hours or more a month from home. As of the current tax year, you can claim:
- £10 per month if working between 25-50 hours per month.
- £18 per month if working between 51-100 hours per month.
- £26 per month if working 101+ hours per month.
Last but not least, although the flat rate method is simpler, it may not cover your full expenses. Consequently, it is crucial to compare these expenses with actual calculations to ensure you have worked out the accurate costs. To learn more about the flat rate method, visit the government website.
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Include the deductible expenses in your self-assessment tax return:
After learning what can I claim for self-employed working from home and calculating the expenses, you will list your allowable expenses in the relevant section when filing your Self-Assessment Tax Return. Sparing you the hassle, accounting software will automatically calculate deductions for you if you are using one.
Ensure compliance:
HMRC closely scrutinises and ensures that the expenses you claim were exclusively used for business purposes. Hence, avoid claiming personal expenses, for this could result in penalties from HMRC if audited.
Bottom line:
The crux of the matter is that understanding what can I claim for self-employed working from home is crucial since the above-listed allowable expenses are recognised by HMRC, and help ensure that you are only taxed on your net earnings after deducting business-related costs.
Thus, they help reduce your overall tax burden and maximize your take-home income. Besides, knowing what you can and cannot claim is hugely significant to maximise your tax efficiency while staying compliant with HMRC regulations.
Nonetheless, while maintaining accurate records and adhering to HMRC guidelines is utterly important, the process of fulfilling your tax obligations can become far smoother by seeking professional guidance.
To this end, the registered accountants at Accountingfirms can provide cost-effective and location-based consultation and services, such as business registration, filing self-assessment tax returns, claiming tax relief, and preparing and filing annual accounts.
Therefore, let the certified and adept accountants be at your disposal to handle your tax obligations with ease while ensuring maximum savings. Do not defer, and get in touch with us today!
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.