Running your business from home?

10th December 2013

If you run your business from home you can claim a percentage of the running costs when calculating the business’s profits for tax purposes. Historically, this has been estimated by us following a discussion with the client.
To be allowable, the expense must be revenue (rather than capital) and must be incurred ‘wholly and exclusively’ for the purposes of the business.

There are now two defined methods which can be used and these are actual cost or a statutory deduction.

Fixed costs versus running costs

These expenses fall into two categories: fixed costs and running costs. Fixed costs do not vary and are incurred whether you work from home or not. Items such as rent, mortgage interest, council tax and maintenance are examples of these.

In contrast, running costs are variable costs associated with using your home and will probably not increase if it is used for business purposes, and these include the cost of heating and lighting, metered water, telephone bills, broadband, cleaning etc.

Deduction for business use based on actual cost

Where you run your business fully or partly from home, a proportion of the fixed costs may be deducted in computing the taxable profits of your business, but has to be a ‘just and reasonable’ amount.

The apportionment can be made by reference to floor area or the number of rooms you use for business purposes.

Statutory deduction

As an alternative to claiming a deduction based on actual costs, for 2013/2014 and later years, all unincorporated businesses can claim a statutory fixed rate deduction in respect of business use of the home.

This removes the need to keep records of the actual costs and make an apportionment, but you do need to keep a record of the hours worked.

The deduction is specified in terms of a monthly amount, which is dependent on the number of hours worked in the home in that month. The hours worked include those worked by employees as well as by you, as the business proprietor or partner. This fixed rate deduction is only available where your home is used for business purposes for at least 25 hours per month.

The monthly deduction is shown below:

Hours worked on the business from home each month Monthly deduction
25 to 50 £10
51 to 100 £18
101 or more £26

If a deduction based on actual costs works out significantly higher, it may be beneficial to keep the actual records and then claim a deduction based on the apportioned costs. We will be discussing this with clients.

For further help and guidance, please contact us.

Chartered Accountants in Sunderland, offering expertise on everything from Tax and Business Planning,
to Accounts and VAT.