Making a claim for Working from Home
Can I claim tax relief for my goldfish, Bubbles, who keeps me company when I’m working from home?
We have been asked some odd questions over the years, especially when it comes to claiming expenses of having a home office.
Making a claim to your business for working from home has been a hot topic during the last couple of years when COVID struck.
What can I claim for working at home?
Sole Traders/Partners
If you are a sole trader or trading through a partnership, there are two ways to calculate a claim. The first is the easy option but the second method, although more lengthy, can produce a higher tax relief claim.
- Using an HMRC flat rate claim based on the number of hours you work from home each month:
Up to 25 hours per month – NIL
Between 25 and 50 hours per month – £10 per month
Between 51 and 100 hours per month – £18 per month
Over 100 hours per month – £28 per month
The business use of home telephone costs can then be added to this flat rate claim - Carrying out a detailed calculation based on the number of rooms used in the house and the proportion of time spent on business use in the house. This is then apportioned to household expenses covering:
Utilities
Telephone
Broadband
Repairs
Insurance
Council tax
Rent or mortgage interest
Directors of Companies
For once, Directors get a less restrictive claim.
You can enter into a licence agreement with your company and charge your company rent for use of a specific part of your home for company purposes.
The rent charged must not exceed the local market rent for the area (room/s) used for the business.
The good news is that the company can then pay you that rent. The company will get tax relief for that rent and as long as the actual cost you incur on that room/s does not exceed the rent you charge to your company, you won’t have any personal tax to pay to HMRC.
There is a very important document which must be maintained between the Director and the company – this is a formal Licence Agreement. Click here for a blank Licence Agreement for you to complete and keep on file.
Benefits of a claim for your home office
To be blunt this means less tax. The holy grail for us all.
Your company will be able to claim tax relief for the claim and you will not have any personal tax benefit arising as long as the rental charged is the same as or lower than your actual running costs of the room/s used on company business. You will also then be able to take out tax free from the company the amount that you are claiming.
What do I need to do to file a work from home claim?
If you’re a sole trader/partner and choose the second option you’ll need to do some background work in completing the spreadsheet every year (and of course making sure that you keep all the receipts which make up your calculation or loading these receipts into Senta if you are a DNA client for us to keep in case HMRC ever wants to look at the claim calculations).
Luckily we have taken out the effort for the 2nd method and have produced a super dooper DNA spreadsheet to make this detailed method easier. If you would like a copy of this spreadsheet, please send an email to us.
If you’re a Director and would like to enter into a licence agreement with your company, you can find a blank agreement here.
Things to be aware of
One thing to mention here is Capital Gains Tax (CGT). You have to be very careful when using the second method that you won’t trigger a charge to CGT when you come to sell your property if it’s owned.
As always, we can help our clients structure this in the best way to make sure CGT is avoided.
Now, back to that first question. Bubbles did not qualify for tax relief. Neither did the plants in his goldfish bowl (yes, another question we had!).
But we have dealt with many of these claims over the years and can help you get the most tax relief through whichever business style you are operating.
Please click here if you would like to chat to us about how a work from home claim applies to you fill in the form and we’ll set up a call.
