The advantages of home office use
When starting out as a contractor, using your home as an office can be a great way to lower the overall cost of doing business. Luckily contractors working from home can claim expenses for having part of their home used as an office. This guide discusses if claims should be made, what the rules are, and what can be claimed
Avoid raising alarm bells with the Inland Revenue
The Inland Revenue are wary of one person limited companies claiming for use of home as office and putting in claims above £2 per week can trigger an investigation. Beware.
Unless there are significant amounts involved it is advisable to steer
away from claiming this expense
Unless there are significant amounts involved it is advisable to steer away from claiming this expense.
If you genuinely work from your home office and decide to claim for this expenses then some factors need considering.
Dedicate a specific part of your house as a home office
When using your home as an office you must keep a dedicated room/workspace available for exclusive use for this purpose. Working occasionally on the kitchen table is insufficient.
Your home office should be furnished like one and be adequately equipped for business purposes to indicate it is a genuine business facility and not part of your normal domestic arrangements. If you don’t need a lot of dedicated equipment to do your work and could feasibly do it anywhere you should think hard about whether you really are working from home. HRMC rarely give contractors the benefit of the doubt when it comes to home office expense claims.
Get business insurance for your home office
To further evidence of your genuine “home as office” arrangement, you should arrange business insurance, for your home contents as used for business.
This provides evidence to an Inspector of Taxes and is also useful in the event of an insurance claim for your business equipment.
You must actually work from home
If you are intending to make a claim it is essential that you actually do some work at home
If you are intending to claim expenses for your office at home it is essential that you actually do some work there.
It is not sufficient to spend five minutes a week on a spreadsheet or invoice. You actually need to be doing some income generating work to justify a claim.
How much can I claim when I use my home as an office?
The amount you can claim should be based on an appropriate proportion of the specific costs arising of light, heat, insurance, rent, rates and other household costs that arise from using your home as an office. This ensures a fair claim is made in respect of the space actually used and is far more satisfactory to HMRC than a “guesstimate” round sum claim.
For example, let’s say one room in a house with 4 rooms (bathrooms not included) is used as an office with the following monthly expenses:
Electric - £60
Gas - £20
Council tax - £100
Insurance - £40
Total = £220
One quarter of the total could be claimed each month, i.e. £55.
[Note that phone calls need to be on a genuine business line, or are claimed on a personal line using the itemised bill.]
Remember, claiming expenses for your home office is not a right – it must be genuine
A claim is not available “as of right” but must be fully justified as a genuine cost incurred as a result of business activity undertaken at your home office.
In the past, contractors have been tempted to make claims which are not so justified, sometimes as a result of bad advice by their accountant! This has resulted in tax enquiries and penalties being levied against them.
Home office - summary of key considerations
- Don’t claim unless you actually do the work at home.
- Don’t bother claiming unless the amounts are significant. There is no point raising alarm bells for a small amount.
- Make sure you have a dedicated workspace as your home office if you do claim.