Our Blog page banner

Sole traders: claiming home office expenses

 

Sole traders: claiming home office expenses

If you’re a sole trader running your business from home, claiming expenses on home office costs is a relatively simple way to lower your tax bill. Unlike limited company directors, sole traders are able to claim all household expenses against tax.

The rules on claiming home office expenses differ for limited companies. Contact us for more information on what you can claim as a limited company director.

Home office costs: what can you claim on expenses?

Sole traders can claim expenses on both fixed and running costs if a part of the home is used for business purposes. Examples of fixed costs include:

 

  • rent

  • mortgage interest

  • council tax

  • insurance (only if your policy covers your business)

  • home repairs and maintenance.

In order to claim expenses on running costs you will need to calculate the amount you have spent for business purposes. Running costs include:

 

  • water bills

  • electricity and gas bills

  • telephone and broadband

  • cleaning.

Calculating expenses

The easiest way to work out your home office expenses is to use HMRC’s simplified flat rate. This saves you from having to calculate the business versus personal proportions of your household expenditure.

Flat rate expenses are done on a monthly basis and increase the more you work from home (but can only be used if you work for 25 hours of more from home each month).

Simplified flat rate

 

Hours worked from home (monthly)

Flat rate (monthly)

25 – 50

£10

51 -100

£18

101+

£26

These rates aren’t likely to make a big difference for many sole traders, especially since not all expenses can be claimed within the flat rate system. Indeed, the flat rate is likely to be lower than what you actually paid, resulting in you paying an unnecessarily high tax bill.

To avoid this, we can calculate the actual costs to your business by following these steps:

 

  1. Count the rooms in your house

  2. Count the number of rooms you use for work

  3. Note the amount of time you spend working in each of these rooms

  4. Divide the cost by the number of rooms

  5. Multiply the room cost by the percentage of the day the room is used for work.

Note that this process cannot be followed for broadband and telephone bills. Instead you’ll need to calculate your business’s proportion of calls/internet usage against your personal use.

Remember that you can only claim line rental costs if you bought it specifically to be able to work from home. Otherwise, you are only able to claim expenses on actual calls or use.

Additional guidance about calculating home expenses can be found on HMRC’s website.

Watch out for capital gains tax

The downside for having a room exclusively for business is that it removes private residence relief, and when you sell the house you will be charged capital gains tax. You can avoid this by not dedicating your home office exclusively to business purposes.

Contact us

Got any questions regarding claiming home office expenses as a sole trader or limited company director?

Contact us on 01628 631 056 or email tracya@knightandcompany.co.uk for assistance.