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Home Expenses -What Can I Claim As A Small Business?Written on November 5, 2018 by Kirk Rice LLP

Home Expenses -What Can I Claim As A Small Business?
Taxing Times Questions

The Question:

I have a small business that I operate from home. What home expenses can I claim against my tax bill?

Kirk Rice LLP answers:

Where an individual carries on a trade (not via a Limited company) and undertakes some of the trading activities (or work) from home, they are using their home (or part thereof) for trading purposes and accordingly may claim a portion of the associated costs (home expenses) as a deduction in calculating trading profits.

There are a number of different methods by which household costs may be apportioned between trading and other use and the onus will fall to the taxpayer to demonstrate that the expenditure claimed is reasonable in the event of any challenge by HMRC.

However, where there is more than one method of arriving at an apportionment, some methods may be more appropriate than others, depending on the expense. Factors to consider include:

  • floor area or number of rooms
  • usage (electricity, gas or water)
  • time

Household Costs

Costs incurred which may be included in calculating a use of home deduction include:

  • mortgage interest (but not capital repayments)
  • rent
  • council tax
  • home insurance (unless the trade use of the home is covered by a separate policy, in which case the costs of that policy will be allowed in full and no part of the home policy expense will be allowed)
  • repairs and maintenance (relating to the property and exterior and internal parts used for the trade (but internal redecoration of parts which are not used at all for the purposes of the trade are not allowed))
  • cleaning
  • heat, light and power
  • metered water charges (HMRC state that where there is only minor use of the home such as writing up records, there will be no trade use of water so none of the water charges will be allowed).

Simplified Use of Home

If however the above calculation is too complex or the apportioned amounts too small you can use simplified rates for claiming use of home expenses. You can only do so if you work 25 hours per month or more. HMRC’s allowable flat rates based on monthly business hours are as follows:

25 – 50 hours £10 per month
51 – 100 hours £18 per month
101 hours or more £26 per month

Important to note that the above needs to be assessed on a month by month basis and the applicable rate applied to each month.

Telephone and Broadband

In addition to the costs above, the homeworker may also incur service costs such as telephone and broadband. These costs generally either have a fixed and variable element or may be entirely fixed if an all-inclusive package is obtained (although the level of the package may still be determined by usage).

HMRC’s approach to apportioning business and non-business use in relation to telephone and broadband can be summarised:

  • telephone: business calls are allowable plus a proportion of line rental (based on a trade to non-trade usage ratio and including both incoming and outgoing calls, although an apportionment based on an itemised bill will be accepted); and
  • broadband: if the internet connection is used for trade purposes only, the expense is allowable. Where there is mixed use, the same approach as for telephone rentals should be used.

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Any reader interested in discussing what home expenses you can claim through your business can telephone Graham Jennings in our Ascot office on 01344 875 000, James Moody in our Putney office on 020 8789 8588 or Tim Neale in our Fleet office on 01252 960 500 or alternatively email info@kirkrice.co.uk

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made