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What tax allowances can self-employed claim when working from home?

Mike Wakeford

Being self-employed and working from home offers numerous benefits such as unlimited income potential, savings on transportation, clothing and tax deductions.

Most people who have moved to self-employment have noted a better work/life balance, especially with remote working options. The ability to choose where you work is a major advantage in itself. You could work from a local coffee shop, café, shared working space or rent an office. However, many prefer to work from the comfort of their own home, and who can blame them?

Self-employed tax deductions    
One of the biggest benefits of being self-employed is the tax allowances that are available. 

NB. Employees are also entitled to some tax deductions if they work from home. Take a look at our blog, ‘what tax allowances can employees claim when working from home’ for more information. 

When you are self-employed, you can claim many tax-deductible expenses. These range from business stationary, printing costs, and postage, to computers, software and travel.

In addition to this, you can also claim tax allowances when working from home; this relates to the costs of running your home (gas, water, electricity) in addition to broadband and your telephone line. 

Self-employed can use a flat rate to calculate expenses if they work at home more than 25 hours a month.
If you use the flat rate, the allowance amount changes depending on how many hours you work at home per month as detailed below. 
Hours worked at home p/m Flat rate p/m
25 to 50 hours £10.00
51 to 100 hours £18.00
101+ hours £26.00

Due to the nature of self-employment, the hours worked from home can very month-to-month. Therefore, the flat rate may vary throughout the year. 
-    If you work 25 hours a month all year around, your total allowance for the year would be £120. 
-    If you work 10 hours for 2 months, 30 hours for 3 months, 60 hours for 5 months and 110 hours for 2 months, your allowance for the year would be £172

Living at your business premises
Some self-employed people live at their business premises, for example those who own guesthouses, bed and breakfasts, and care homes. If you fall into this category, you might ask yourself, what expenses am I entitled to if I live at my business’ premises?

Fortunately, for you, there is another simplified method to calculate business expenses in this scenario detailed below. 
Number of people in household Flat rate p/m
2 £500.00
3 or more £650.00

Mrs Smith is in the hotels sector and runs a bed and breakfast where she lives there all year round. 

For 6 months of the year, her husband and daughter also live at the bed and breakfast. 

The total cost of running the premises (including electricity, heating, insurance, repairs and security) for a year comes to £50,000. 

To calculate the personal use of the premises, Mrs Smith would need to use the table shown above. 
Mrs Smith (6 months) x £350 = £2,100
Mrs Smith, Mr Smith & Ms Smith (6 months) x £650 = £3,900
Total = £2,100 + £3,900 = £6,000

Therefore, the business use that Mrs Smith can claim is £44,000 (£50,000 - £6,000). 

Conditions and apportioning expenditure
Generally, the rules relating to expenses as a tax deduction for self-employed states that the expense must be ‘wholly and exclusively for the purposes of the trade or running the business.

However, this does not mean that any expenditure relating to trade must be billed separately nor does it mean a section of your home must be permanently used for trade purposes. 

Typically, when there are fixed costs, which relate to the home, they can normally be apportioned, based on the area and time. This includes insurance, council tax, mortgage interest, rent, repairs and maintenance. However, you should also consider the following. 

-    Telephone
Telephone costs related to business calls are allowable. However, the proportion of home to business calls must be calculated. Many providers now supply telephone, broadband and television in a combined package. In this case, a reasonable apportionment should be allowable for business use of telephone and broadband. In the majority of cases, costs relating to television use will not be permitted.

-    Heat, light & electricity
Heating, light and power can be apportioned on a reasonable basis; however, this should reflect actual usage. If you only use an area of your home for business purposes, an area and time basis will be most appropriate. However, if you use specialist equipment for your business and it requires more power and resources to run, a high proportion should be allowed. 

-    Rent
If you rent your home from a landlord, rather than own it yourself, and part of the home is used solely for business use; an area and time basis can be used. It should be noted that if you are the homeowner, you cannot charge your self-employed business rent. 

This list is not exhaustive and includes mortgage interest, insurance, council tax, repairs and maintenance and cleaning. 

The exclusive use of part of your home for business purposes could have an effect on your private residence relief when it comes to Capital Gains Tax. 

Our blog on the changes to private residence relief covers this in more detail. 

How can Moore help? 
Our team offers bespoke advice on tax, trust and estate planning and wealth management, as well as assistance with day-to-day matters such as tax returns. We ensure easy access to the right people, so decisions can be made quickly and confidently.

We provide solutions to a wide range of clients, including high net worth individuals, families, entrepreneurs, and professionals.

To learn more about our private client tax services, please head to our website, or contact your local Moore office today.