This subject seems to be one that many clients ask. Self-employed people mainly base their work place at home although work may take place at customer locations. This can be many trades & professions from plumbers, accountants, chiropractors, computer technicians etc. It also covers freelance musicians, actors and other performers.
As you visit customer sites, it would be reasonable to be able to charge to your business the cost of getting to the customer locations. But, there is a little bit of an issue if when you walk in after being at customer locations, your trading activity stops as you get home. If no work was done at home, it implies that home is not the true base of your business. You need to make sure that business happens in the home such as writing up proposals, quotations, invoices, research etc.
In order to claim costs to travel from home to a customer location, you need to keep records of what you do at home in relation to the business. The type of records would be:
- A diary of time spent working on your business administration such as raising invoices, dealing with your bookkeeping, writing proposals and quotes, white papers, report and on-line educations, plus social media & marketing tasks;
- The proposals & invoices that you do all come from your home address as the business base;
- Complete and accurate records of all the travel you do to the customer locations – be it mileage, public transport even air & boat fares;
- If you have any insurance policies to cover your business, they would normally be addressed and registered to where the business is based, so this should be the home if that is where the business is based.
As you work from home, the costs of running the home increase to cover utility costs, insurance and other maintenance costs. You also need the place to work which means there is no office rental and business rates to cover.
There are two methods of calculating the “working from home allowance”.
Method 1: A fixed rate allowance that can be claimed depending on the average monthly hours worked from home.
|Less than 25 hours per month||£0|
|25 – 50 hours per month||£10|
|51 – 100 hours per month||£18|
|101+ hours per month||£26|
This method is therefore easy to calculate but you need to keep records of hours worked and technically work done.
Method 2: The actual expenses method
Work out the total spend running the home. This includes mortgage interest, council tax, house insurance, gas, electricity (not water), cleaning and repairs/redecoration to the business room. If a room is dedicated to the business, divide the yearly total running cost by the number of rooms (minus the kitchen and bathrooms) and multiply by the number of rooms used by the business. If the room is not solely dedicated to the business, this figure needs to be reduced proportionately. This would normally be the number of hours worked from home in a week, multiplied up for the number of weeks worked at home (take into account holidays), divided by 8760 which is the number of hours in a year as that room in the house is available for use 24 x 7. Should a room be 100% dedicated to your business, this will give rise to issues when selling the house for capital gains tax purposes as you will not be able to claim 100% Private Residence Relief. . Of course, you should look into business insurance, letting the mortgage company know you are running a business and find out if there are any increases of costs to cover the business.
Some business may require some specific changes to the house, but if they are things like loft or garage conversions, summer houses etc, always check out the planning if for business use. Things like installing an ISDN line for voiceover work is specific to the business so can be claimed as 100% business cost.
What about company directors?
The above concerns the self-employed, but unfortunately the same rules to no apply to company directors and employees. Relief is available for some costs incurred if the director or employee works from home providing there is no personal use of the service for example broadband used for the business and also for personal use. If it is a dedicated business broadband line, then that can be claimed in full as an allowable cost. The extra cost of lighting and heating can be claimed via the proportion method (2) above.
What is specifically excluded from the home as office allowance is the proportion of rent, mortgage interest and council tax as these have to be paid personally. If you want to read the notice, it is EIM32820. Now a director could charge the company rent of the space in the home, but there would need to be a formal contract between the director and the company, and the rental income would need to be declared on the self-assessment tax return.
You could take the easy route, and claim £4.00 per week for using your home as office.
Just be aware of the 24 month rule for travel which we discussed on the blog post >>> HERE <<<<
This article is intended to give general knowledge and thought provokers. It is not designed to be a replacement for professional advice tailored to your exacting needs and circumstances. We cannot give advice to anybody not a client of Herrington Accounting Services or Performance Accountancy, therefore please take advise from your own Accountant. Herrington Accounting services & Performance Accountancy can accept no liability for decisions made or losses incurred through failure to properly consider professional advice or through reliance on this general guide.