Please note this article is for directors of companies, if you are a sole trader please see our other article here.

Company directors working from home can claim expenses for using part of their home as an office, however it is recommended to take care when claiming as HM Revenue & Customs take an interest in this. 

• Keep a dedicated room/workspace available for exclusive use for business purposes, during business hours (eg 9 to 5, five days a week). Working occasionally on the kitchen table is insufficient and if the room can be used by members of your household while you are working, any claim will fail.
  
• Your workspace should be adequately furnished for business purposes to indicate it is a genuine business facility and not part of your normal domestic arrangements. 
  
• If you do a significant amount of work at home and have a genuine home office arrangement, you should arrange business insurance for your home as the contents are used for business.

This provides evidence to an Inspector of Taxes that you need to use your home as an office, as you have no other workspace, and is also useful in the event of an insurance claim for your business equipment.

Claiming

You are permitted to make a claim for any ‘additional’ costs incurred because it is necessary to work at home.

Expenses that will increase due to working at home are as follows:

• Heating
• Lighting
• Electricity
• Water usage – if you are on a water meter

You can claim the appropriate proportion of the additional costs incurred.  

Usually this would be calculated by considering the number of rooms in your home and the hours spent working in that room, when ordinarily it would be empty.

You should keep copies of all utility bills and a spreadsheet / method of calculation of these expenses for use in the future should your claims be challenged.

This ensures a fair claim is made in respect of the space actually used and is far more satisfactory to HMRC than a guesstimate round sum claim.

You are not permitted to make a claim for any ‘standing costs’ in relation to your property, which remain payable and do not increase regardless of whether you work at home.  You cannot make a claim for:

• Council tax
• Water rates if you are not on a meter
• Mortgage payments or interest
• Telephone line rental, unless it is a second dedicated business line

Example

For example, let’s say one room is FULLY dedicated solely to business use in a house with 4 rooms (bathrooms not included) with the following household monthly expenses:

Electric - £60 
Gas - £20 

Total = £80

One quarter of the total could be considered each month, i.e. £20, however, this amount should then be reduced for any proportion that the room is used for non-fee earning purposes.

Telephone Calls

To be able to recover the full expense of telephone calls and line rental, you must have a dedicated business phone line installed, in additional to the normal phone line for domestic purposes.

If you just have one phone line, you are permitted to claim the full costs of any business calls and should keep itemised bills to back up such a claim.

Broadband expenses cannot be claimed unless you have a separate broadband contract in your company name.  This is because the broadband is already available and no additional costs are incurred when you use it for business purposes.

A claim is not available as of right but must be fully justified as a genuine cost incurred as a result of business activity undertaken at your home.

In the past, contractors have been tempted to make claims which are not so justified, sometimes as a result of bad advice by their accountant! This has resulted in tax enquiries and penalties being levied against them.

Conclusion

• Do not claim unless you actually do a significant amount of fee earning work at home.
• Consider not claiming unless the amounts are significant. There is no point raising alarm bells for a small amount.
• Make sure you have a dedicated workspace
• Keep full records of bills and calculations if you make an additional claim
• Please note that using a part of your property exclusively for business purposes can restrict certain Capital Gains Tax reliefs so it is worthwhile ensuring that a home office has an alternative domestic purpose outside of working hours. Therefore, furniture, fixtures and fittings along with any refurbishment costs are not recommended to be claimed through the business.
• Please see the following link to HMRC's website for more information