How To Claim Tax Relief For Your Home Office

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March 01, 2017

A freelancer or contractor, having finally made their leap to independence, will probably begin their journey at home, with a steaming cup of coffee at 9am most mornings. It’s a no-brainer – you don’t have the funds for professional office rental, and your operation is limited to just you; why not stick to home turf, maintaining a strict work day for as long as you can?

HMRC does grant tax relief on home offices, providing you evidence it correctly. There are two main routes to doing so, along with a couple of particulars for deciding what you can claim, and what you can’t…

The standard approach

First off, what do office expenses consist of? It’s a pertinent question that’ll clarify your tax-deductible resources, including the time you spend with them.

Typically, you’re allowed to claim relief on a portion of the heating, electrical bills and council tax you pay. This is achieved by totting up your living costs – rent and mortgage interest is lumped in too – and assessing how much the office contributes to that final sum.

So, for instance, you may have outgoings of £600 a month. Let’s say that roughly one sixth of your home is taken up by the office; that means, potentially, you’re entitled to a £100 of that number as an allowable expense. To bolster your credibility, however, it’s best to further divide your findings by the number of days you work at home per week. Taking that £100 example, you could admit that your work schedule only consists of five out of every seven days. £100 ÷ 7 = £14.28 which, x 5, is £71.43: the ‘legitimate’ figure for viable utility/rent expenses every month.

Each cost, it must be said, should be calculated separately i.e. electricity bills vs. council tax responsibilities. It’s also possible to claim for software, stationary and hardware that you plan to use for less than two years. An accountant can look over the status of these items and deduce where they might fall in line.

The simplified option

Choosing HMRC’s standard methodology means there’s going to be a lot of paperwork to pore through, and payment obligations to divvy up. Some freelancers prefer the ‘simplified’ alternative, which eliminates much of this complexity.

Those in a registered limited company don’t qualify for it; these calculations are open to sole traders and business partnerships that aren’t incorporated. It exists to make a flat-rate distinction between your types of expenditure, so you don’t have to sort professional payments from personal ones.

If you work 25 hours a month or more from home, then you qualify. Essentially, you get £10 relief for 25-50 hours, £18 for 51-100, and £26 for anything over 101. Internet and telephone bills are exempt, although they can be worked out with the standard strategy.

Either of the two approaches are doable – you’ll find that one may seem a much better fit for your self-employment. By taking on an accountancy team like Bright Ideas, the most suitable expense blueprint will reveal itself to you, as our financial experts have years of experience dealing specifically with contractors and freelancers in this area. Call 0161 669 4221 or email to get your home office off to the soundest economic start!

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