Using your home for your self employed business

20 March 2015

In the UK there are many small businesses that are based at home and from tax year ended 5 April 2014 onwards there is an optional simplified flat rate deduction basis. An alternative method is to claim a reasonable amount for using a room or rooms at home for business purposes, based on apportioning actual expenses.
Costs might include part of the bills for heating, light, and mortgage interest. If you are using this method it is important to keep original bills or evidence of amounts paid and the basis on which the proportion has been calculated.

There are no hard and fast rules. What is ‘reasonable’ is influenced by

The size of your ‘office’ in relation to the whole property;
The length of time you spend working from home;
Whether you occupy a room exclusively for business or use a room for business and non-business purposes;
The number of other people living in the property might affect the proportion of private use.

One important point to note is if you use a room in a home you own, ‘exclusively’ for work, this could reduce the Capital Gains Tax private residence exemption when the property is sold. This is because any part of the property exclusively used for business will not qualify for Capital Gains Tax private residence relief. This problem is generally avoided as it is most likely that the room used as the ‘office’ would be used by other family members not involved with the business.

Simplified flat rate deduction basis for 2013-14 onwards

An alternative basis, available from 6 April 2013 onwards, is to claim a flat rate deduction:

£10 a month for 25 hours to 50 hours working from home
£18 a month for over 50 to 100 hours
£26 a month for over 100 hours

Where business premises, such as a pub or hotel, are also used as domestic accommodation for the business owner, the adjustments are:

For one occupant – £350 a month
For 2 occupants – £500 a month
For 3 or more occupants – £650 a month

The flat rate covers all household goods and services, food and drink and utility bills, but not mortgage interest, rent, council tax or rates.
Although the simplified flat rate exists some businesses may still prefer to use the reasonable proportion of actual bills when preparing figures for tax purposes.

We have therefore prepared a Use of home as office for the Self Employed worksheet which you can download free of charge by entering your name and email address in the boxes below.

Many business owners have used the worksheet and are consistently saving hundreds of pounds in tax!

Get your worksheet below!!!