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If you are self-employed, you have the right to deduct from all your income part of the cost of the house from which you carry out your business activity. There are two calculation methods:
1. Fixed amount (flat rate)
2. Proportion Base
When it comes to a fixed amount, things are simple, as everything is done based on hours basis. Based on how many hours you worked from home is given the proportion of allowable cost you can claim. For details, see the table below.
Hours of business use per month | Flat rate per month |
|---|---|
25 to 50 | £10 |
51 to 100 | £18 |
101 and more | £26 |
EXAMPLE
You worked 40 hours from home for 10 months, but worked 60 hours during 2 particular months:
➤ 10 months x £10 = £100
➤ 2 months x £18 = £36
Total you can claim = £136
ATTENTION! Despite the simplicity of the calculation, it may not be the optimal calculation method for your case, as the house expenses can be so high that the Proportion Base gives larger amounts of expenses and subsequently less taxes to be paid.
The Proportion Base method is a bit more complicated and does not always have generalized rules. For example, the type of business is taken into account. It's one thing to be an architect where you visit clients and spend most of your time working from their home and another when you are a writer and writing books at your own home.
The HMRC clearly explains it with the term "fair and reasonable". To put it simply, the cost of the house should be fairly distributed, between personal and professional use.
The method of proportion is as follows - You calculate how many rooms the house has, taking into account the number of rooms to be used and the percentage of exclusive use for business (for example by calculating how many hours has been used).
EXAMPLE
The house has 4 rooms of which 1 you use for business by 90% and the total cost for the house is £ 1,000.
The amount that can be counted as expense is £ 225 ((£ 1,000 / 4) * 90%).
ATTENTION! If you use any part of your home solely for business purposes, there may be Capital Gain Tax when you sell the home.
The types of expenses that can be counted are:
➤ Loans - Part of the interest to be repaid
➤ Rentals - The ratio
➤ Tax - Council tax or Business rate
➤ Phones (Proportion)
➤ Renovations (Proportion)
➤ Water (only if you consume large quantities, eg have a car wash business at home)
For detailed information, simply easily arrange an online session with us.
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ATTENTION!
This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.
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