Using Your Home as an Office? You Could Be Saving Tax!

The long commute, the office politics, the limited food choices, or even the numerous work distractions are among the many reasons that more and more people are now choosing to work from home. Instead of traipsing into the office and battling with the traffic and school run only to find you can’t park or the trains are running late, you can roll out of bed, switch on the kettle and settle down to work at your desk where getting dressed is optional!

Working from home is now a far more viable option with cloud computing and fast affordable Wi-Fi available in so many areas. And with more and more businesses now working in the cloud, your team and your clients can be anywhere in the world.

Home working is popular and whether you’re in the study or on the kitchen table you could well be able to claim back some tax and make some savings. From office furniture purchases to increasing your tax-free income from the business, there are some really good reasons for you to look into this.

Home office? Claim something back

If you’re using your home as an office, instead of using a business premises, you can claim back some money to help you reduce your tax bill. Getting money to help with things like Council Tax, heating, lighting, phone calls and broadband should be a welcome relief.

That’s where good accounting really comes into play and what we try to do at all times here at Trinity. Thorough accounting makes sure you’re claiming for everything you can and paying just the right amount of tax.

If you’re using a home office, then the expenses from your household that enable you to do that should and could be claimed back in your tax return or business accounts, which could help lessen your overall tax bill.

Every little helps, right?

There are two main ways you can claim back expenses for your home office:

  1. A fixed rate approved by HMRC.
  2. An accounting estimate.

Option 1 – Fixed rate from HMRC

With this option you can opt for a fixed tax relief of £4 per week. This isn’t much but it is the simplest way and you won’t need to supply any records of household bills either. If you are self-employed this rate varies according to how many hours you work, so don’t rely on this and add it to your tax return. Check the information from HMRC first. Limited companies can use the flat rate but it must be approved by HMRC. You can find out more about this fixed rate here, or you can ask us to help you with it.

It’s not a massive amount of money, but over the year you could be claiming back £204 and when you add this to the many other ways to save on paying tax, it makes a difference.

Option 2 – An accounting estimate

Option two is a little more complicated but could help you claim back more than double the amount of the example shown above. It works by calculating a proportional cost of your home and giving you a figure to claim back on your annual tax return or business accounts, thus saving you on your final tax bill.

The accounting estimate is a simple one and works like this:

  • Work out the annual cost of running your home and include bills like your mortgage interest, rent, utility bills, Council Tax and insurance etc.

    Let’s say that these amount to £10,000 for easy maths.

  • Then you need to split this figure with the number of rooms you have in your home, excluding kitchen and bathrooms, that are available for business use, like your study or spare room.

    Let’s say one out of five for this example.

  • And then you’ll need to work out the time that the rooms are utilised for business use to give you the final figure.

Let’s say 8 hours a day, 6 days a week.

And now you calculate your figure!

Using the example above the charge going through the accounts would be:

£10,000 divided by 1/5 of the rooms, divided by 8 hours a day (÷24×8) for 6 days a week (÷7×6), which would give you £571 to claim back for the year.

This method is more time-consuming and will take some working out, but you will get a far more accurate answer and in almost all cases you’ll have a higher figure that the flat rate of £4 a week.

A word of warning for option two

If, for example, you have a room in your house that is solely for business use, then you’ll have to account for that in the future and you could well have an issue with capital gains tax. You’ll also need to pay business rates for that room, which is a lot more expensive than Council Tax.

So, if you go down the route of option two, make sure you do the time proportion part of it correctly as this will show that you’re only using the room(s) for the business for a limited amount of time.

Working from home? Save on some tax

Your use of a home office can mean that the tax-free income to you as the business owner is higher and your corporation tax bill will be reduced. Adding up all those bills and charging back or claiming it from the business will reduce your tax and that’s got to be a good thing.

More and more people are working from home and even if you’re only doing it for a few days a week, you could be leaving a few hundred pounds on the table.

Good accounting is all about making sure you pay just the right amount of tax and options like the ‘use of home office’ all add up to some really big savings that can help your business stay profitable.

If you need help, then do give us a call.