Using your home for business
If you run your own business from home, you may be able to claim a home office allowance which could be a flat amount, or based on actual costs. Once the method has been selected, that is the one that should continue unless circumstances change. Contact us and we can give you the outline of both methods.
Method 1 – use HMRC allowances
The allowances are based on the number of hours a month you work in your home on your business. This could be doing all your work from home like a maths tutor, or only the administration of your business like paperwork like a plumber.
Keep a record of the number of hours spent each month, and then work on the following table:
- Less than 25 hours per month £0
- 25 to 50 hours per month £10
- 51 to 100 hours per month £18
- 101+ hours per month £26
Records do need to be kept and available if requested.
Method 2 – Home apportionment costs
Work out the total spend running the home. This includes mortgage interest, council tax, house insurance, gas, electricity (not water), cleaner, and any repairs to the overall house e.g. the roof. If you live in rented accommodation, replace the mortgage interest with the rental amount. Things like telephone & broadband are not included in this calculation as these are based on actual use. Any repairs/redecoration to the business room would be taken in full as a business expense but then apportioned down for the amount of non-business use.
Count the number of rooms in the house (excluding the kitchen, Bathrooms, garage, hallway & landing), and the number of room that are used for the business.
Divide the yearly household cost by the number of rooms and multiply up by the number of rooms. The result needs to be reduced down by the amount of time it is used for business. Having a room 100% dedicated to your work will cause issues with capital gains tax when you come to sell it as it has not always been personal use. If you have several rooms that are used, calculate the amount per room as they will have difference usage percentages.
We have developed a quick tax calculator in excel that will work this out for you. All you do is fill in the yearly costs, number of rooms and percentage use, and it will give you the amount to put into your tax return.
Once you have worked out this amount, you need to keep evidence of how you came up with the figures, so copies of the household bills will need to be kept as part of your 6 year financial records.
Always talk to your accountant before acting on any advice. If you’d like to talk to us about your accounting requirements, please complete the contact form >>>> HERE <<<< and we’ll get in touch.