HMRC has recently introduced a simplified expenses ratio that anyone who is self-employed and works at home can use to help them work out how much they can claim for on their annual tax return.
If you want to keep your expenses simple then you can total how many hours you work at home each month and claim a flat fee for gas, electricity, insurance service charges, mortgage interest repayments, cleaning and council tax. Below is a summary of the flat rate per month that can be claimed.
Hours Per Month worked for expenses claims
If you work between 25 to 50 hours a month you can claim a flat rate of £10 expenses per month. £51-100 hours per month of work equates to a flat rate of £18 expenses per month. Anyone working 101 hours per month can claim a flat rate of expenses of £26 per month.
James Murray, Practice Manager, Visionary Accountants, St Albans said:
‘This is a really useful way for any sole trader to be able to easily work out what expenses to claim for. Be aware that you should always keep a record of how many hours you work from home in order to do this. Also do remember that HMRC have limited the amount you can claim for this ‘simplified method’ to £312 per annum.’
Proportion of costs method
Alternatively HMRC allow you to claim a proportion of your costs that relate to your business. Using this method enables you to work out exactly how much you are owed.
You will need to know how much it costs to run your home. You can include mortgage interest repayments if you own your own home, or a rental charge if you rent. You can also include gas, electricity, insurance service charges, cleaning and council tax.
You must then work out how much of these costs you can allocate to your business by considering how many rooms you have in your home, and determine what % of time you use one room for business use.
For example if you use a study as an office for your self-employed business for 25% of the time that the study is in use, and you have 6 rooms excluding bathrooms, kitchens and a hall. If the total running costs of your house each year are £18,000 it would be acceptable to claim £750. This is worked out by considering the total costs of £18,000 and dividing by the 6 rooms to give £3,000 and claiming 25% of this as a proportion of time that the room is used for business.
Remember that you shouldn’t use your office room entirely for business use, to prevent paying potential capital gains tax you should keep a part of the room for personal use.
James Murray, Practice Manager, Visionary Accountants, St Albans, continued:
‘Please remember that this advice is only relevant for the self-employed, if you are a limited company expense claims work differently. The good news is that HMRC allow the self-employed to use either method to determine their expenses. If you are self-employed and want any advice about completing your tax return or are unsure which expenses claim to use, please call me at Visionary Accountants on 01727 730550 as we offer a free initial consultation.’