Working from home – everything you need to know about allowable expenses and tax reliefs

The world of work has transformed dramatically in recent years, with more people than ever working from home – thanks COVID!

Who can claim working from home expenses?

The rules differ depending on your employment status:

• Limited company directors can claim expenses through their company, potentially saving both corporation tax and personal tax.
• Sole traders can claim business use of home as an allowable expense directly on their tax return.
• Employees required to work from home can claim tax relief on certain costs, though the rules are more restrictive.

Simplified Flat Rate method vs actual costs method

The Flat Rate is the most straightforward option and allows you to claim:

• £6 per week (£26 per month) without needing receipts or calculations
• Available to both sole traders and employees
• Limited company directors cannot use this method for company claims

The flat rate covers basic running costs like heating, electricity, and broadband. It’s ideal if you want simplicity, but you might be able to claim more using the actual costs method.

Actual Costs Method

This involves calculating the actual business proportion of your household expenses:

• Determine the number of rooms in your home
• Identify which room(s) you use for business
• Calculate a reasonable percentage of business use
• Apply this percentage to relevant household costs

While this requires more record-keeping, it often results in higher claims, especially if you use a dedicated space exclusively for business.

N.B. Having a dedicated space at home which is only used for work could create a Capital Gains Tax liability when you come to sell your home, so talk to your accountant about optimising your taxes and

Allowable expenses for home workers

Utilities and running costs

You can claim a proportion of:

• Heating and electricity
• Council tax
• Internet and phone costs
• Water rates
• Home insurance (business portion)

The key is identifying a reasonable business percentage based on time spent working from home and space used.

Home office setup

Working from home often requires specific equipment:

• Office furniture (desks, chairs)
• Computer equipment
• Printers and office machines
• Software subscriptions
• Office supplies

Limited company directors can claim these costs through the company, while sole traders can claim them as business expenses.

Property-related expenses

Tread carefully with these expenses:

• Mortgage interest or rent (business portion only)
• Repairs and maintenance (to business areas)

Limited company considerations

As a limited company director, you have several options:
1. Claim the business proportion of actual costs through your company
2. Establish a formal rental agreement between you and your company
3. Use the £6 per week allowance as a employee of the company
Each approach has different tax implications, so it’s worth discussing with your accountant to find the most advantageous method for your circumstances.

Sole trader considerations

If you’re a sole trader, you can either:
1. Use HMRC’s simplified expenses method (a flat rate based on hours worked at home)
2. Calculate the actual business proportion of your home expenses
Most sole traders find that calculating actual costs provides a more beneficial claim than the simplified method.

Of course, there are all sorts of other allowable deductions so grab a copy of our handy tax deductible expenses guide to make sure you are claiming everything you’re entitled to.

Common HMRC Challenges

HMRC may question claims that appear excessive or don’t reflect genuine business use. To avoid issues:

• Ensure your claims are reasonable and proportionate
• Keep detailed records of hours worked at home
• Maintain receipts and evidence of expenses
• Document how you calculated business use percentages

Record-Keeping Best Practices

Good record-keeping is essential:

• Keep all household bills and receipts
• Maintain a log of hours worked from home
• Document how you calculated your business percentage
• Store records for at least six years

Maximising your legitimate claims

Working from home creates genuine costs, and HMRC recognises this through various tax relief options. The key is finding the right balance between maximising your claims while remaining compliant with tax rules.

For most business owners, taking the time to calculate actual costs rather than using simplified methods will result in higher legitimate claims. However, the additional record-keeping requirements must be weighed against the potential savings.

Need help determining the best approach for your situation? Contact us for a free consultation to review your home working arrangements and ensure you’re claiming everything you’re entitled to.

Frequently asked questions about working from home expenses

Can I claim for my home internet if I use it for both personal and business purposes?

Yes, you can claim a reasonable proportion of your internet costs based on your business usage. You’ll need to estimate the business percentage – for example, if you use your internet 60% for business, you can claim 60% of the cost. HMRC expects you to make a fair and reasonable apportionment. Check the HMRC website for detailed guidance on apportioning expenses.

Does claiming home office expenses affect my home insurance?

Possibly. Many standard home insurance policies don’t cover business activities, so you should inform your insurer that you’re working from home. This might result in a small premium increase, but this additional cost can potentially be claimed as a business expense. HMRC doesn’t specifically address insurance requirements, but inadequate coverage could affect your business risk.

Can I claim for a garden office or outbuilding used as a workspace?

You cannot claim capital allowances on the cost of constructing or converting an outbuilding for business use. However, you can claim running costs like heating and lighting, fixtures and fittings such as a desk, chair and carpets as well as integral features such as lighting, air conditioning and heating. However, be aware that structures dedicated 100% to business use could potentially affect capital gains tax relief when you sell your property. The HMRC website provides guidance on capital allowances for structures.

What happens if I only work from home part-time?

You can still claim expenses, but they should be proportionate to your home working time. For the flat rate method, HMRC requires you to work from home regularly to claim the full amount. For actual costs, you would factor in both the space used and the time spent working from home when calculating your business percentage.

Can I backdate claims for previous years if I’ve been working from home but not claiming?

Yes, you can amend your tax return for up to four years after the end of the tax year. For employees, you can claim tax relief going back up to four tax years.

Is it better to claim through my limited company or as an employee?

Generally, claiming through your limited company provides more scope for allowable expenses and can be more tax-efficient. However, the right approach depends on your specific circumstances and the amount of expenses involved. HMRC has separate guidance for company directors and employees on their website.

How does working from home affect my business rates liability?

Most home-based businesses won’t trigger business rates unless you make significant changes to your home, like converting part of it exclusively for business use or seeing clients there regularly. The Valuation Office Agency, rather than HMRC, handles business rates assessments.

Do I need to inform my mortgage provider or landlord if I work from home?

Yes, you should inform both. Most mortgage agreements and leases contain clauses about running businesses from the property. While HMRC doesn’t regulate this aspect, failure to disclose could potentially invalidate agreements. This isn’t directly a tax issue, but it could affect the legitimacy of your business operations.

What’s the difference between ‘use of home as office’ and a formal rental agreement with my company?

‘Use of home as office’ involves claiming a proportion of household expenses through your company. A formal rental agreement means your company pays you rent for the space, which is property income for you personally. The latter might offer more tax advantages but has more complex tax implications.

How does Making Tax Digital affect my home working expense claims?

Making Tax Digital doesn’t change what you can claim, but it does affect how you record and submit information. You’ll need MTD-compatible software to track your home working expenses digitally. As always, we are on hand for a free no-obligation chat about your business to make sure you are as tax-efficient as possible.