How to calculate your tax deduction for working from home
Note this guidance applies to the self-employed only. If you are an employee or director of a Limited Company there are different rules.
Many contractors work from home. One of the benefits of this is that you can charge a portion of household expenses to your business. Here is a really simple guide. Note that this is based on monthly costs. If you are doing this once a year then make sure you are using an average month and multiply it all by 12.
The general principle is to take allowable home costs and divide it by the number of rooms in your house (excluding bathrooms).
Here is an example
I worked out these monthly costs by running down my personal bank statement; I suggest you do the same. I isolated anything that could be considered to be a ‘house cost’, which is pretty hard to define but you should get an idea from the list. We’re basically talking about utilities and mortgage interest / rent.
|Electricity and gas||£82|
|Phone and internet||£20|
The phone and internet was a bit more complicated as it was all part of a bigger Sky TV package. To work out the amount I went to the Sky website and looked to see how much I would be paying if I only had the phone and internet.
The mortgage should only be the interest element of your repayment. That is easy for me as I only pay interest but if you make capital repayments too work out the interest by multiplying the amount of mortgage you still owe by your mortgage interest rate and dividing by 12. Eg: £100,000 x 3.5% / 12 = £291.67. If you pay rent instead then charge your rent (remember to include any service charges).
£421 represents the cost for the whole house. I only work from one room and the room is not used for anything else. Excluding bathrooms there are six rooms in the house so I divide the £421 by 6 to get £70.17. That is my monthly expense. (Note: If I only used the one room during the daytime for work purposes and it was used at night for entertainment then I should halve the expense again.)
That’s all there is to it. It is really simple. You will probably realise that you could sneak a few more things in there but it’s not worth it, this is a very easy area for HMRC to attack and if they see you taking advantage they will look into other areas too. Stick to utility costs and mortgage interest.
As always please comment below or otherwise get in touch if you want to discuss.