Being self-employed gives you flexibility to carry out work from your home and leads you to a number of advantages. Out of many advantages of being self-employed, one is that you are entitled to include the partial running cost of your home in your accounts in order to save tax. Depending on your work, you can claim for expenses such as computers, office equipment or even renting a part of your home for your business. During this COVID-19 pandemic, owners of limited companies are also working from home and they are also eligible for claiming expenses. 

However, HMRC has a set of rules and regulations regarding the claims for your business. Taj Accountants has come up with today’s blog to give you a perspective on the expenses you can include on the tax deductible assets while you’re working from home.

Limited Company

Limited companies can employ two methods for working out home-office expenses. If you are an owner of a limited company then you can use HMRC’s Flat Rate Method or you can create a Rental Agreement.

Flat Rate Method for Limited Companies

To calculate your home office expenses by using the flat rate method, you can use allowance for the additional costs of running your business from home. In this case, you can claim for £6 per week which provides you an allowance of £312 for the 2020/21 tax year as an allowable expense. The allowance was £4 a week in 2019/20 and £208 per year. The amount is tax deductible through your Self Assessment as this is not confined as ‘benefit in kind’ by HMRC. 

Rental Agreement for Limited Companies

As an owner of a limited company, you’re able to rent your personal workstation in your home to your limited company and claim that as an expense. You can claim more than £312 as long as you’re running your business through your limited company and abiding by the rules of HMRC.

Through a rental agreement,  you can claim a higher amount than £312 from your limited company. The agreement will be sealed between you and your limited company. With the agreement, your company can subtract the payments from your company’s pre-tax and Corporation Tax. Your rental agreement covers the proportional rental expenses with no defined list of allowable expenses but includes items such as mortgage payments, council tax or utility bills depending on how much they are used in terms of your business.

To be eligible to this agreement, the amount of your rent needs to be authentic based on commercial value with an ‘arm’s length’ basis. You can not claim for the amount of rent that is not used on the beneficial purposes of your business. You need to consider the annual reviews of the amount of the paid rents. Your rental agreement must be signed with the consent of all the members of your company. 

Self-employed

If you re self employed or a partner of a partnership business, you can adopt either the Flat Rate Method or the Costs Method. You can conduct a flat rate calculation for your business by using the simplified accounting method. You can work out the costs by using the cost method, for instance; the bills of your house incurred due to your business. 

You can calculate by using the government’s website which has a simplified expenses checker to help you decide which method is best for you or you can reach out to an accountant in London for face-to-face consultation. 

The Flat Rate Method for Self-Employed

Using this method you can calculate how many hours you have spent from your house on your business within a month. The method includes fixed amounts based on the hours you have spent on your business. The amount varies as following:  

   • £10 per month for 25-50 hours, 

   • £18 per month for 51-100 hours and 

   • £26 per month for 101 hours or above. 

To be eligible, you need to have a record of working a minimum of 25 hours a month. By using this method you can claim on allowable expenses like your utility bills but exclude expenses such as the proportion of your telephone or internet expenses. 

The Cost Method for Self-Employed

This method implies when you are not eligible for the simplified accounting method. To claim for the proportion of the running costs of your home in your business accounts, you have to clarify what sort of task you actually do from your home. The clarification requires you to conduct the actual task that your business fundamentally requires you to do.

Based on the method, you need to determine the element of that cost of your business and the part that relates to you actually living there. For this, you can identify how many rooms you have in your house, in which room you work on and how many hours you spend there for work purposes. For example, you have 5 rooms in your house and you only use one for business and you use almost 90% of it for personal usage. Now you need to include all the costs that you can claim and multiply that by 1/10 and then by 90%. Thus you get the actual figure for the business use of your home.

Claimable Home Office expenses

Your claimable expenses depend on the regulation HMRC has imposed and vary from  limited companies and self-employed.

Mortgage Interest: If you work from home which you bought on mortgage then a portion of the house mortgage interest can be deducted. 

Rental Expense: If your house is on rent while you are working from home then you can claim a portion of the rent for your business. This will reduce your rental cost. 

Council Tax Cost: Depending on your business you can claim for a portion of your council tax cost. This will require you to determine how much of your home you use for business. 

Electricity Cost:  You are allowed to claim the business proportion of your electricity costs based on how many hours you have used it for business purposes. 

Telephone Bills:  The amount of time you use your telephone to make business calls are claimable. You can even claim for the full amount if you use the telephone solely for your business.  

Repairance Cost: The reparance cost that occurs due to business uses can be added up in your claimable expenses. 

Water and Gas Cost: Businesses which require to use a lot of water and gas can claim for the proportion of the bill for business purposes. For example, if you provide car washing services from home then you can get separately charged for water usage for your business and claim for the expense.

Final Thoughts:

The amount of expenses will be considered as allowable expenses if they fall under the “wholly and necessarily” rules. You need to run a proper calculation regarding the expenses and consider accuray for your claimable expenses. You can take help of any small business accountants in your area or you can contact us as your reliable accountant in East London.

Here Is How Taj Accountants Can Help You:

Here at Taj Accountants, we work with companies, self-employeds, start-ups for any accounting and taxation services and provide the most suitable consultancy in order to maximize the profit of our clients. We provide services with the top-notch technology considering the HMRC regulations. You can reach us at any time for the most convenient service at an affordable price. 

DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you to contact Taj Accountants for further assistance.