Contractors often find that one of the benefits of contracting is working from a home office. However, this convenience means that you will inevitably eat into your own electricity and heating that you would otherwise not use when working in a professional workplace. Furthermore, you may need to purchase specialist equipment that would otherwise be provided by an employer. This leads most working contractors to ask, what expenses can I claim if I work from home?
With expenses such as out of office travel, office equipment and utility bills, to name a few, we explain the breakdown of all the expenses that can be claimed through your limited company as part of your home office expenditure.
Firstly, when making any purchases for your home office it is imperative to keep hold of all receipts. HM Revenue & Customs (HMRC) has the right to request receipts from expense claims as far back as 6 years previous. Therefore it is crucial that you keep hold of the business receipts to ensure your claims can be authenticated. It is also important to ensure your claims are business related.
Claiming your utility bills
When working from home, you will use your own heating and electricity, which you would not need to do if you were working in a traditional office. HMRC allows contractors to expense the amounts used for business purposes only. This means that you will have to figure out how many hours per day are used on your utility bills and claim for that business cost alone, or claim a fixed amount of £4 per week.
If your home office is only used for paperwork and accounts, then you will be eligible to claim a flat rate of £4 per week to reimburse you for bills incurred through utilities and general upkeep. You must carry out a small percentage of your work from your home office that could not otherwise be carried out in your appointed work site in order to claim this expense.
If your home office is where you do the majority of your work, then you may want to do calculations on the amount of utility usage incurred by your home office. These are separated into three categories – gas and electricity, metered water costs and business phone calls.
In order to make accurate calculations, you will need to ask yourself the following three questions:
Time – how many hours per day is the home office used for business?
Usage – how much cost is incurred by the home office, e.g. electricity?
Area – what proportion of your house does the home office take up?
Once you have figured this out you will be able to make more reasonable calculations and ascertain the amount of expenses that you will be eligible to claim.
Stationery and office software
When working from home, you may have to use your personal equipment to carry out work. For example, you may need to print out documents for clients from your home printer, resulting in increased ink usage. This is an allowable business expense to claim for. Cartridges, paper and general stationery that are required to carry out everyday business activity will also be a viable expense to claim through your limited company.
Telephone and Internet
Telephone and internet are additional costs that you can also claim through your limited company. Many contractors will use the same mobile for personal use along with business calls; if this is the case for yourself, you will again have to sift through bills and claim only for the costs that are for business use. You can do this through applying for an itemised bill from your telephone provider. Personal usage on the internet and telephone will not be eligible to be claimed.
Furthermore, if you have a mobile phone or internet connection that is in your business name, then you can claim for the entire cost as a business expense. Doing this will ensure that all calls to this mobile are for business reasons and you are not having an engaged phone line due to personal calls.
Contractors outside IR35 legislation who have to travel outside their home office for work and business purposes, to meet a client for example, are allowed to claim back their mileage as an expense. HMRC allow you to claim 45p per mile for the first 10,000 miles in each tax year, which runs from 6th April to 5th April of the following year. After you have claimed 10,000 miles, this rate will decrease to 25p per each additional mile.
If you do not drive or have access to a vehicle, you can still claim your travel expenses for business use. For non-drivers, you can claim train, bus, taxi and air fares. Along with this, you will be able to claim parking fees.
Points to remember
When working from home, it is important to remember to keep all of your receipts as evidence of your business expenses. This means that should HMRC ever need them, you will be able to prove what was purchased and for what cost.
At Churchill Knight & Associates Ltd, we have been helping contractors and freelancers since 1998, which makes us one of the most experienced and professional UK Contractor Accountants. Our services include providing dividend vouchers and payslips, and managing invoicing, payroll, bookkeeping and more. We are the all-inclusive payroll service that takes the hassle out of contractor accountancy.
If you are unsure about any of the above expenses, or have a question about another expense claim that is not mentioned, you can contact our team at 01707 871622 for guidance on other expenses that you may be eligible to claim for.
Additionally, if you are a contractor in need of a payroll service that permits you to claim expenses and benefit from further tax saving opportunities, then a limited company service may be ideal for you.