Contractor Home Office Expenses
Home Office Expenses
Short guide for UK limited company contractors and freelancers, operating outside of IR35 rules. It also assumes the directors and shareholders are full-time UK residents, running their businesses from the UK.
Use of Home as Office
If you use part of your home to run your business you can claim either a flat-rate allowance, actual costs or through a rental agreement.
HMRC Flat Rate Allowance
To keep things simple, HMRC allows a flat £4 per week, or £18 per month (excluding business telephone calls) which can be claimed back from the company, without the need for any receipts.
Here is a great explanation by Emily Coltman FCA of how to go about calculating the actual costs of your home office, there are further written details below.
Actual Costs continued...
Claim for actual costs, which may include:
- Metered light and heat
- Calls made on your home telephone
- Insurance, if there is business equipment insured under that policy
- Repairs if incurred on business equipment
- ISP/broadband costs, if dedicated to the business
- A proportion of the cleaning costs of your work space, if the work is of the type that requires extra cleaning.
- In order to establish the proportion of household costs used by the business, work out the percentage of your property which is used for business purposes, what proportion of a utility bill that can be apportioned to business use (e.g. lighting or heating), and for how long each day the service is used for solely business reasons (for example, the business area only needs to have lighting for 50% of the day).
- Costs must be incremental i.e. they have increased as a result of the business activities being performed from home.
Costs that are explicitly excluded are: Mortgage interest or rent, water rates and expenses that do not have receipts i.e. cash wages of a cleaner.
Alternatively, the employee may be able to rent out part of the property to the employer. This will allow tax relief on mortgage interest and council tax. (This needs careful planning and Beans accountants can help explain the potential advantages of this approach in a lot more detail).