A growing number of employees are able to work from their homes. Many employers are willing to facilitate flexible working for their employees and create the conditions for a better work-life balance. But do employees have a right to work from home, and are there any laws governing work from home?
Whether you’re a teacher, writer or a field worker – many professions require at least some work to be done from the employee’s home, while certain occupational groups now work entirely remotely. To create the perfect atmosphere for focused working, it’s worth setting up a dedicated room as a home office. In some cases, it’s even possible to claim the home office, furniture, and office equipment as a tax-deductible expense. We’ll show you what to look out for when considering tax relief for your home office.
- Who’s allowed to tax-deduct a room as a home office?
- Free whitepaper
- When is the home office considered tax-deductible?
- Home office: What am I allowed to write off?
- How to deduct expenses when working from home?
Who’s allowed to tax-deduct a room as a home office?
Not every professional will be able to claim relief for a dedicated home office or work equipment to lower their taxes. Whether you can deduct a home office depends, in the first instance, on whether you’re employed or self-employed. The UK regulations that govern who and what can and can’t be tax-deducted are stipulated by the HMRC, and generally differ for sole traders and limited companies. Generally, only the self-employed or limited companies are able to claim back some of the expenses for their home offices. However, where an employment contract specifically requires an employee to work from home (i.e. this not being optional), employed people many claim back expenses for their home office at the end of the year.
You’ll qualify as self-employed when you’re working for yourself or have set-up a small business. This may include working freelance, providing services as an independent contractor, being a partner in a business or working for yourself part-time or on the side.
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When is the home office considered tax-deductible?
To claim expenses on a work room in your home, some requirements need to be met. Not every space that comes equipped with a desk automatically qualifies for tax relief. There are some requirements that have to be met:
- You must be using your home office regularly and exclusively for business purposes. That means if you’re using the family dining table to conduct your work in the mornings or evenings, you cannot claim a tax deduction. The desk area would have to be used solely for business in order to qualify. If, for example, you regularly meet and greet clients in a separate room, this would be suitable as a write-off.
- Storage, day care facilities, and separate structures all typically qualify for tax relief as long as they are used solely for business purposes.
- The home office must be your principle place of business. That means, if you tend to work away from your home office and only rarely use it to fill in some paperwork, you may not be able to claim expenses on the room.
If you’re renting an office room or a co-working space outside of your home, you can fully tax-deduct the costs for the space as a business expense. However, your home office would not qualify for an additional or separate allowable relief.
Limited companies can also set up rental agreements between themselves (acting as the homeowner) and their limited company. In this way, they have a formal written agreement over the amount they can tax-deduct. However, this amount needs to be reasonable and equate to the space you actually use for business purpose.
Home office: What am I allowed to write off?
In order to write off the costs of a home office, you should know which types of expenses you can deduct. Among the costs you can tax-deduct are:
- Utility bills (gas, electric, water)
- Home contents and buildings insurance
- Telephone, internet, and mobile phone bills
- Part of your rent or mortgage
- Security costs
- Repair costs
- Office equipment
- Office furniture
- Travel costs
- Staff costs
- Advertising/marketing and training fees
Expenses paid to set-up an office at home can be deducted retrospectively.
How to write off your rent or mortgage?
Whilst expenses for furniture or office equipment such as a computer can be fully tax-deducted, rent and mortgages can only be partially written off. There are generally two options used to calculate how much taxpayers can deduct.
Example 1: simplified expenses
One of the easiest options is to use the HMRC’s flat rates that are based on the hours worked from home. These should only be used if you spend more than 25 hours per month working from home.
|Hours home office is used for per month||Flat rate per month|
The HMRC website also provides flat rates for vehicle use per month and for business owners living at their premises (for example, hotel owners).
Example 2: calculating actual expenses
The second option includes calculating your expenses based on the actual space you use and all other expenses such as repair costs and utility bills. The way you want to calculate this is up to you. For example, if there are four rooms in your house and you use one of them as your home office at a rent of £1,000 per month, you would divide the rent by the number of rooms to obtain the expenses estimate:
£1,000 / 4 = £250
You’ll be able to claim £250 per month for your office. Alternatively, you could measure the actual square metres of your office at home.
Let’s assume the total space of your home is 1,000 square metres and you use 100 square metres (10%) of it as your home office. You would be able to write off 10% of all expenses as follows:
|Expense type||Cost||% of home office||Allowable deductible expense|
|Total: £150||Total: £150||Total: £150||Total: £150|
According to the calculation above, you would be able to write off £150 in total per month for your home office. Generally, you cannot deduct more than your gross income was. So, if your yearly expenses were £1,500, but you only earned £1,000, you cannot claim the full expense amount.
A well-equipped home office should include the Microsoft Office Suite. IONOS provides Microsoft Office including OneDrive and Microsoft Teams – the optimal solution for businesses and sole traders. The tools allow you to collaborate with others via the cloud. Costs for Microsoft Office can be deducted as a business expense.
How to deduct expenses when working from home?
You can claim tax relief on your home office using the self-assessment tax return forms. If you’re self-employed, you can enter the deduction for your home office expenses in the appropriate section in the self-assessment form online or on paper. You can either provide the total expenses or list a detailed break-down of expenses. Limited companies generally fill out a company tax return.
It’s a good idea to keep a record of any expenses you want to write off for your home office until the end of the year and file them safely in case of future external audits by the HMRC.
Where two or more people share a home office, they cannot each claim the full amount for the space, but must divide the allowable home office expense between them. However, they may be able to claim higher relief for utilities and bills, depending on usage.