Knowledge Centre

Option 1:

The easiest method is to claim the flat allowance of £312 per annum, no receipts are required and this is allowed by HMRC if you use part of your house as an office. Simply claim £26.00 in your bookkeeping each month and it will be included in your accounts.

Option 2:

If a reasonable proportion of your fee earning work (i.e. not company administration but actual fee earning work) is carried out at home, you can claim a proportion of the actual expenses you incur relating to the running costs of your home office. This cost allocation is done by dividing the allowable costs by the total number of rooms in your house / flat and multiplying by the space available for business use. We then divide this by the number of days in the month and multiply it by the number of days fee earning work is carried out at home. Finally we divide this by 24 hours and multiply by the number of hours the space is available to the business i.e. the business may occupy the space from 8am to 6pm.

Example.

John and his girlfriend live in a two bedroom flat with a living room, kitchen and bathroom, a total of 5 rooms. One of the bedrooms is used as John’s home office for his company along with some storage for personal items. He estimates 80% of the space is used for business and 20% for storage. The space is available between the hours of 8am and 6pm for the company to use.

John adds up all of the allowable costs (see list detailed below), divides them by 5 and multiplies this by 80%. He then divides this by the number of days in the month and multiplies it by the number of days he has carried out fee earning work from home. Finally he divides this by 24 (number of hours in a day) and multiplies it by 10 (8am to 6pm the hours his company can use the space). This gives John the amount he can charge his company for the use of his home.

This can be a complex calculation so we have built a dedicated calculator in our bookkeeping system 123Books that will work everything out for you.

The following home office costs can be included in the calculation:

Rent

If the property is rented the amount of the rent reflects the existence of the space that is used for business.

Mortgage interest

If the property is owned on a mortgage the amount of the mortgage interest reflects the existence of the space that is used for business (you can not include the capital as this is a personal asset you are purchasing). However if you draw a salary from your company that is no more than the personal tax allowance (tax year 2024-25 = £12,570) and your only other income is dividends from your company then due to the way tax relief for mortgage interest against property income is given in your personal tax return it would actually be tax inefficient to claim mortgage interest in your use of home office calculation and you should therefore not include it.

Gas/Electricity

If the space is to be used for work it must be lit and heated to the extent necessary to carry out the work.

Cleaning

If the space is for work it must be kept in a fit state for the work to be carried out. Unless a cleaner is employed there is unlikely to be any significant expense exclusively incurred in cleaning the room.

Telephone & internet

If the company uses the home telephone line and broadband internet access then the monthly cost of this can be included in the calculation.

Notes to Option 2:

1. You must be able to show how you calculated your home office costs - i.e. you will need to keep your bills and a record of how you worked out the apportionment i.e. the calculator in 123Books.

2. In order to preserve Principle Private Residence Relief you and your company need to sign a Non-exclusive licence to occupy agreement. The agreement must state that the facilities (office space) are only let to the company for designated hours each week i.e. 8am to 6pm Monday to Friday. We can provide you with a template Licence to Occupy agreement. Once completed you should have your non-exclusive licence to occupy reviewed by a qualified solicitor.

3. You have to declare the use of home as office income in your personal tax return.

4. You can not claim the property allowance against the income as the licensor and licensee are connected.

5. You can claim the costs of providing the space which by using our Use of Home as Office Calculator are the same as the use of home as office income which means there is no property income profit and no personal tax to pay.

6. Directors should also ensure that their mortgage lender or landlord permits the property to be used for business purposes and that the household insurance is not adversely affected.

7. Business Rates – if you work at home you should check your local council’s web site which will give information about business rates. In many cases the council do not apply bushiness rates if it is just a ‘home office’ situation but you should check.

8. You should keep a record of local serviced office rates in order to satisfy the market value test that you are not charging your company more than comparable local rents.