ListenToTaxman.com

UK PAYE Tax Calculator / Salary Calculator

The number 1 free UK salary calculator tax calculator since 1998. Calculate salary, national insurance, HMRC tax and net pay

Working from home - allowances for the self-employed (updated for 20/21)

Self-employed guide to claiming allowances for working at home

If you are ‘self-employed’ and work from home, understanding and calculating the expenses you’re allowed to claim can be a murky area. It is essential to gain a good understanding, as it will help reduce your tax bill. We’ll take you through the two routes to calculate your working from home expenses – ‘The Simplified Method’ and the full DIY method, which uses actual costs.

Warning: This is guide is aimed at those who are classed as ‘Self-employed’ by HMRC, sometimes known as sole-traders. This guide does not apply to limited companies. Likewise, if you are ‘employed’ then please visit our guide to the ‘Home Working Allowance for Employees’.

Before we dive in with these calculation methods, it’s worth pointing out that you should aim to use the method that gives the highest calculation, as this will have most impact on your tax bill. We’re not asking you to do anything dodgy – simply to follow the methods prescribed by HMRC.

The ‘simplified method’ of calculating your expenses

The ‘simplified method’ is the easiest and quickest way to calculate your expenses and this method allows you to claim a flat rate for using your home as a workspace.

The table below shows how much you can apply on your self-assessment return for the expenses of working from home using the ‘simplified method’:

Hours of business use per monthFlat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26

[Rates current for 20/21]

However, using this method could mean that you miss out on taking advantage of all your tax relief, so please compare.

Calculation:

Say, you worked 35 hours from home for 9 months, but worked 50 hours during 3 months:

9 months x £10 = £90
3 months x £18 = £54

Total you can claim = £154

HMRC also allow you to use this type of approach for vehicle costs and for those living in their business premises. For full details on the simplified method see HMRC’s website  HMRC Simpler Income Tax Simplified Expenses

DIY calculation – actual costs

The second way is calculating the percentage of how often you work at home, by how many rooms you may use and applying this percentage across applicable bills. To do this you need to understand the average % of usage of your home. This calculation does sound difficult, but once you have calculated your first expense, you will be able to use the same percentages across all other expenses you claim.

QuestionsExample
How many rooms do you have in your house? Do not count halls, pantries or small WCs. 7
How many rooms do you work in and for how long - as a percentage for the day? 2 rooms - lounge 25%
kitchen 50%
Divide each expense by the total number of rooms Gas £490 divided by 7 = £70
Then divide the room cost by the percentage of use for each room used for working from home £70 x 25% = £17.50

£70 x 50% = £35

The yearly gas expense in the example is £52.50.

Now you need to calculate this percentage across each of your expenses.

Expenses you can claim for working from home

There are quite a number of expenses you can claim a proportion of whilst working from home. And these include:

  • Mortgage interest or rent on your home
  • Utility bills including gas, electricity (not water, unless you can show you use water for business purposes)
  • Household insurance
  • Phone line rental
  • Council tax
  • Broadband costs
  • Cleaning costs – this can only be claimed if you pay a cleaner and you have a receipt to cover this expense

Here are a few other expenses you may not have thought about:

  • Stationery – don’t forget to claim back your business related stationery expenses and these include paper, pens, business cards, envelopes, pencils and staples.
  • Printer toner and ink - you can claim back a proportion of the cost of toner or ink used for business documents you print. You will need to understand the percentage of business usage and apply this across the cost of the consumable – make sure you keep your receipts.
  • Property repairs – if you need to make a repair to your property, then you can claim this back as an expense using the DIY expense calculation above if the repair effects the area of the house you use for working from home. If the repair only effects the area you work in and let’s say you work in this area 60% of the time, then you can claim 60% of the overall repair bill.

You will not be able to claim any of the costs if the repair does not include an area of your property that you work in.

It might be useful to take a look at our guide: Self-Employed Expenses made Simple

Keeping records

One of the most important things you should do as a self-employed business owner, is to keep record of your transactions. We’d recommend keeping all receipts, and maintaining a separate business bank account.

We’re also big fans of a self-assessment app called GoSimpleTax. It lets you upload your invoices and receipts. It will totalise your profit and loss for the year to date (always useful to know), and then calculate and submit your annual self-assessment to HMRC at year end. The fully paid up version is £46, but you can access their Freemium version for no charge, and you don’t have to provide any payment details. If your financial affairs are relatively simple you could use this, perhaps with the help of a spreadsheet, or otherwise it plugs into most major accounting packages.

Useful Link: Home Working Allowance for Employees

ListenToTaxman

Simple TaxOur Favourite Tax App?
It's Simple

ListenToTaxman have teamed up with GoSimpleTax, the online self-assessment app to bring you, what is in our view, the easiest way of calculating and submitting your tax return we’ve seen so far. Key in your income and expenses into the app, and it will flag up any unclaimed allowances. Simple.

Once you’re comfortable with the information you’ve entered, simply submit via the app to HMRC. You’ll just need your Tax Reference Number - found on most tax correspondence. GoSimpleTax let you use their software free for 14 days. If you don’t think it’s right for you - don’t pay anything. If you do to choose to submit your tax information via the app, then at most of you will be charged £46 for their standard service (silver).

This article was published in our Guides section on 03/08/2020.

Some Guides you may be interested in

More from our Guides section

409