Use of Home as Office

Limited Company, Partnership, Personal Tax, Sole Trader,

HMRC’s guidance on how to calculate Use of Home as Office is misleading, so how do you make sure you are claiming all that you should be?

The figures on the HMRC website are aimed more towards those that work from home as employees on an occasional basis, than for a business owner.

We’d look in detail at Use of Home costs for clients when we come to prepare their accounts, but this is the process that we follow:

What costs can we look at?

The true working from home costs that can be claimed should be based on the number of rooms in your house and the proportion that you actually use for business.

You should include in your calculations all costs that relate to the house, so things like:

  • House insurance
  • Rent
  • Mortgage interest (not the capital repaid)
  • Light and heat costs
  • Telephone and broadband or internet connection (unless those are in the name of the business already. Some people have lines just for the business, but if you’re using your domestic line, then you should include that cost as well.)

What NOT to include…

  • Your council tax is a specific exception.

Should I allocate one room of the house entirely to the business?

We’d say no!

Firstly, if you state that any of the rooms in your house are used exclusively for business purposes, that can affect your principle private residence exemption that you get when you decide to move home. What you don’t want to do is actually say that you use a room exclusively and cause yourself a problem for later.

It’s best to keep your options open!

As an example, I have an office that I use for work, with a desk, cupboard, printer and all of the other paraphernalia for the work I do for the business.

The room is also used for dress making though, so it houses my sewing machine, my crochet supplies and all sorts of things, which are carefully tucked out of sight, as well as lots of books, which are a mix of business and non-business.

These things don’t need to be visible to mean that the room is not wholly used for business. You may have a sofa bed in your office, so it can double as a spare room when needed, or a gaming room out of hours… the options are endless, but given we all want more space in our homes, I’m sure you can find one that works for you!

Secondly, if any room is entirely dedicated to a business, it can cause problems with regards to Business Rates, which you want to avoid where possible!

The calculation…

Add up all the costs that apply for the house and divide by the total number of ‘usable’ rooms in the house. This excludes bathrooms, en-suites, cloakrooms etc.

Multiply that number by the number of rooms that are used by the business.

You then need to multiply the result by the estimated business use of each room.

So for example, if you have an occasional meeting in your dining room, that might equate to only 5% of the costs being attributable to the business.

For the study that you use 95% of the time for business, then you take 95% of those costs.

The ‘Use of home as office’ calculation isn’t that involved, but it IS one that can cause a few problems. It’s usually far better for your pocket to take the above route, than to claim the Revenue’s preferred fixed weekly amount, as long as you can substantiate the figures you use.

We review the use of home figures regularly for clients, and prefer this method. It takes a little more work, but is far more accurate.

If you have any questions or want to clarify anything, then as ever, please do get in touch. We’re here to help you!

Either drop us an email, give us a call, whichever works for you. We’ll do our best to give you a very prompt response and shed a little light on whichever area of it is causing some confusion.

I’ll leave you with that and I’ll see you very soon.

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