As more people work from home, understanding how to claim tax relief on home office expenses has become increasingly important. The UK tax system allows employees and self-employed individuals to claim relief on certain costs associated with working from home, but the rules differ depending on your employment status and circumstances. This comprehensive guide will walk you through everything you need to know about claiming tax relief on home office expenses, including eligibility, what you can claim, and how to file your claim.
Who Can Claim Home Office Expenses?
Whether you’re an employee or self-employed affects how you claim tax relief for home office expenses:
- Employees: Can claim tax relief only if they are required by their employer to work from home and have incurred extra costs as a result.
- Self-Employed: Can claim a portion of household costs related to business use as a deductible expense against taxable income.
Let’s break down each group in detail below.
Employees Working from Home
Employees can claim tax relief on home office expenses if:
- Your employer requires you to work from home (for example, there is no appropriate office space available).
- You have incurred additional costs (such as heating, electricity, or broadband) as a result of working from home.
Voluntarily choosing to work from home or working from home occasionally does not usually qualify.
Flat Rate Method
HMRC allows employees to claim a flat rate of £6 per week (£26 per month) without having to provide receipts. This amounts to £312 per year. This is the easiest way to claim relief and covers additional household costs like heating and lighting.
Actual Cost Method
If your additional costs exceed the flat rate, you can claim the actual amount, but you’ll need to keep detailed records and evidence of the expenses incurred. Typical costs include:
- Additional heating and lighting costs.
- Business-related phone calls.
- Metered water used for work purposes.
- Internet costs, but only the business portion.
You cannot claim for costs that would remain the same regardless of working from home, such as rent, mortgage interest, or council tax (unless self-employed).
Self-Employed Individuals
If you’re self-employed and working from home, you can claim a portion of household costs as allowable expenses, either using simplified expenses or actual costs.
Simplified Expenses Method
HMRC’s simplified expenses allow self-employed individuals to use a flat rate based on the number of hours you work from home each month:
- 25-50 hours/month: £10/month
- 51-100 hours/month: £18/month
- 101+ hours/month: £26/month
This method avoids complex calculations and is easy to apply, though it may be less beneficial if your actual costs are higher.
Actual Costs Method
You can also calculate the actual cost of using your home for business by apportioning household expenses. Typical costs include:
- Heating, electricity, and water bills.
- Council tax.
- Mortgage interest or rent.
- Internet and telephone costs.
- Home insurance (business portion).
Apportionment is usually based on the number of rooms used for business and the time spent using them. For example, if you use one room out of five exclusively for work 50% of the time, you would claim 10% of total household costs.
Claiming Tax Relief for Employees
If you’re an employee, you can claim tax relief on home office expenses using:
- HMRC’s online service: Suitable if you’re only claiming for home working expenses and your claim is straightforward.
- Form P87: For claims under £2,500 per tax year, you can submit a paper claim.
- Self Assessment tax return: If you already file a Self Assessment return or if your expenses exceed £2,500.
Relief is given by adjusting your tax code, reducing the amount of tax deducted from your salary.
Claiming Tax Relief for Self-Employed
Self-employed individuals claim home office expenses as part of their business expenses in their Self Assessment tax return. Use the simplified expenses or actual costs method as described earlier. Make sure to keep accurate records to support your claim in case of HMRC enquiries.
Record-Keeping Requirements
Whether you’re employed or self-employed, it’s essential to keep records of:
- Utility bills showing increased usage (if claiming actual costs).
- Calculations of any apportionment of costs.
- Evidence of working from home arrangements required by your employer.
For employees using the flat rate, no receipts are needed, but it’s wise to keep records of your working arrangements in case HMRC asks for clarification.
Potential Pitfalls to Avoid
Here are some common mistakes to watch out for:
- Claiming for expenses you would pay anyway (e.g., mortgage principal payments).
- Claiming the full cost of broadband or rent without apportioning it for business use.
- Claiming home office expenses if you chose to work from home voluntarily and were not required to by your employer.
Getting Professional Advice
If your situation is complex or you’re unsure how to calculate your claim, consider seeking professional advice. A tax adviser or accountant can help you navigate the rules, calculate allowable expenses, and ensure you maximise your tax relief while staying compliant with HMRC requirements.
Conclusion
Claiming tax relief on home office expenses is a valuable way to reduce your tax bill if you’re working from home. By understanding the rules, choosing the appropriate method (flat rate or actual costs), and keeping good records, you can make the most of the available reliefs. Whether you’re an employee required to work from home or a self-employed professional, taking advantage of these opportunities can make a real difference to your finances.
