Keep It Simple! Flat Rate Expenses For Working At Home

Sarah Laing points out that fixed rate deductions may be available to the self-employed who work at home.

Many small businesses can choose to be taxed on the basis of the cash that passes through their books, rather than being asked to spend their time doing calculations designed for big businesses (‘cash basis’).

It is also possible for the business to use certain simplified arrangements for claiming expenditure in working out taxable profits for income tax purposes. Flat rate expenses can be claimed for business costs for vehicles, working from home, and living at your business premises.

Running the business from home

If you run your business from home, you will be able to claim flat rate expenses for business use of your home. This means you do not have to work out the proportion of personal and business use (e.g. how much of your utility bills are for business). Instead a monthly deduction will be allowable provided certain criteria are satisfied. The current rates are as follows:

Number of hours worked per month	Applicable amount
25 or more	£10.00
51 or more	£18.00
101 or more	£26.00

The number of hours worked in a month is the number of hours spent wholly and exclusively on work done by the person, or any employee of the person, in the person’s home wholly and exclusively for the purposes of the trade.

Example1 – Working out the monthly deduction

John worked 60 hours per month from home for a period of 10 months, and worked 110 hours per month during two particular months. He can claim the following amount against his income for tax purposes:

10 months x £18.00 = £180.00

2 months x £26.00 = £ 52.00

Total amount claimed = £232.00

Living at your business premises

Some businesses use their business premises as their home (e.g. guesthouses). If you use premises mainly for business but also for private use, you may, instead of making the standard deduction outlined above, make a deduction for the non-business use. The allowable deduction will therefore be the amount of the expenses incurred, less the non-business use amount.

The non-business use amount is the sum of the applicable amounts (see below) for each month, or part of a month, falling within the period in question (usually the tax year). The applicable amounts are as follows:

Number of relevant occupants	Applicable amount
1	£350
2	£500
3 or more	£650

A ‘relevant occupant’ is someone who occupies the premises as a home, or someone who stays at the premises otherwise than in the course of the trade.

Example 2 – Rita runs a guesthouse

Rita runs a guesthouse and also lives there all year round with her husband. Her overall running costs are £10,000. She can claim a flat rate deduction for private use as follows:

12 months x £500 per month = £6,000

Expenses claimed against income £10,000 - £6,000 = £4,000

How do I claim?

Keep records of business miles for vehicles, the number of hours worked at home, and details of people living at the business premises over the year. At the end of the year, work out how much can be claimed and include these amounts on your self-assessment tax return.

Practical Tip:

You don’t have to use simplified expenses. You can decide if it suits your business. HMRC provides a simplified expenses checker, which can be used to compare what you can claim using simplified expenses with what you can claim by working out the actual costs. The checker can be found online here.