13 FAQs people ask about expenses they can claim when running a business or working from home.
- What is an 'allowable expense'?
- Will my allowable expenses be similar to other businesses?
- What must I take into account when apportioning an expense?
- Are heating, lighting and power costs allowable expenses?
- Are telephone and broadband costs allowable expenses?
- Are insurance costs an allowable expense?
- Can I claim a portion of my council tax as an allowable expense?
- Is mortgage interest an allowable expense?
- Can I claim a proportion of my rent as an allowable expense?
- Are repair and maintenance costs allowable as a business expense?
- Can I claim for costs spent improving my home as a business expense?
- What expenses can I claim if my business operates mostly away from my home?
- Where can I get more information on allowable homeworking expenses?
1. What is an 'allowable expense'?
By law, an expense is allowable as a deduction only if it is incurred 'wholly and exclusively' for business purposes. It doesn't have to be billed separately nor does the part of your home have to be set aside permanently for business. For example, you can claim for allowable expenses for a room used as your office during work hours, but it must not be used for other purposes during that time.
2. Will my allowable expenses be similar to other businesses?
Not necessarily. People organise their businesses differently, so there is no fixed proportion of costs allowable for particular types of business. That said, the amount you seek to deduct as an allowable expense is expected to be similar to someone running a similar type of business in similar circumstances.
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3. What must I take into account when apportioning an expense?
Area – how much of your home is used for business purposes? Usage – how much is consumed (eg where there is a metered/measurable supply such as electricity, gas or water). Time – how long is it used for business purposes.
You can simplify the process of working out how much you claim by using simplified expenses using flat rates for certain expenses. Simplified expenses can only be used if you work more than 25 hours per month from home. The rates you can claim are:
- £10 per month if you work 25 to 50 hours per month from home;
- £18 per month if you work between 51 and 100 hours per month;
- £26 per month if you work from home for more than 100 hours per month.
Higher rates are payable if you live in your business premises.
Simplified expenses
Self-employed businesses (sole traders and partnerships) can use fixed rates ('Simplified Expenses') to calculate how much they can claim for certain common types of business expenses if there is mixed business and private use. You can choose to use simplified expenses or calculate your expenses the usual way.
4. Are heating, lighting and power costs allowable expenses?
Where used wholly and exclusively by your business, yes, a proportion of the amount you pay is allowable. Obviously, that proportion will be determined by how much power your business consumes in your home. Some businesses use far more than others. A proportion of water charges are also allowable.
5. Are telephone and broadband costs allowable expenses?
If used wholly and exclusively for business, yes. If used partially for business, a suitable proportion is allowable. An itemised bill will help when it comes to working out the cost of business calls made. Some of the monthly charges you pay to telephone/broadband providers is also allowable.
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6. Can I claim insurance costs as an allowable expense?
If you have separate business cover, this is allowed in full, but no part of your household policy is allowed in that case. If you don't have separate business cover, a suitable proportion of your domestic insurance is allowable.
7. Can I claim a portion of my council tax as an allowable expense?
An appropriate proportion of your council tax bill is allowable, if part of your home is used exclusively for business some or all of the time.
8. Is mortgage interest an allowable expense?
If part of your home is used solely for business some or all of the time, a proportion of the mortgage interest you pay is allowable. Repayments of capital are not allowable.
If you use part of your home exclusively for business, Capital Gains Tax (CGT) may be payable when you sell your home. Private Residence Relief normally allows a person to sell their main home without triggering CGT. However, the relief is not available on parts of your home used exclusively for business. CGT would be payable on the proportion of the gain that relates to exclusive business use if the gain exceeds your CGT annual exempt amount.
To preserve Private Residence Relief, and avoid a possible CGT liability, you should ensure the business part of your home is also used for a domestic/private purpose.
9. Can I claim a proportion of my rent as an allowable expense?
Part of the rent you pay to a landlord is an allowable expense if part of your house/flat is used solely for business purposes for a proportion of the time you work. A sole trader cannot charge a separate rent to their business, because you cannot rent a property to yourself.
10. Are repair and maintenance costs allowable as a business expense?
Yes, if you operate your business from your home some of the cost of general household repairs and maintenance is allowable. That might include redecoration of the exterior of the building or roof repairs. If a room is used solely for business, redecoration costs are wholly allowable.
11. Can I claim for money spent improving my home as a business expense?
If you mean having an extension built or fitting a new kitchen, as examples, no, neither is an allowable expense.
However, if you built a workshop or home office at the bottom of the garden for the purposes of running your business, it is possible the expenses can be claimed if they were 'incurred wholly, necessarily and exclusively for the purposes of the business'. In which case, you may be able to claim them in full. Professional advice is always advisable.
12. What if my business operates mostly away from my home?
You can still claim deductions for allowable expenses generated when part of your home is used solely for business. A home-based office used for administration purposes is a common example.
13. Where can I get more information on home expenses?
You can get advice on allowable expenses if you are self-employed (including expenses incurred if you use your home for business such as premises, utilities, telephone and internet expenses) from the HM Revenue & Customs website. Alternatively, you can call HMRC's Self Assessment helpline on 0300 200 3310.
A good tax adviser will also be able to help you understand the essentials and help you claim all the expenses you are entitled to.
