Is a Home Office Worth It?

working from home tax

As a young or potential entrepreneur, renting out office space seems like a daunting idea right?

It’s a big commitment, especially when there is an alternative.

This is a topic that I encounter all the time.

With a growing number of people working from home nowadays, claiming the cost of rent or their mortgage repayments is becoming a hot topic, with most people thinking they can claim the full amount and that being that.

Unfortunately it’s not as straightforward as that.

Many Things Factor In

Yes, you are allowed to claim a certain amount of “use of home as office,” but this depends on many factors, including how many hours you work at home and how many rooms your house contains.

You are able to claim a proportion of costs incurred for:

  • Mortgage or rent
  • Heating, water, gas and electricity
  • Taxes
  • Insurance (if you pay an extra premium) for using your home as an office
  • Broadband and telephone

You have to determine:

  • How many hours you work in the house
  • Have you got a room set aside for purely business use?
  • The total annual cost of your mortgage/rent is

For Instance …

Let’s run through an example to help break it down for you:

Heating — Let’s assume you work full time from home and that you have a five room house with one in full-time business use. The rooms cover an equal proportion, therefore using up an equal amount of the heating costs.

Let’s say that the total costs incurred during the year are £1,500.00, The amount you can claim will be 1,500/5 = £300. Then you’ll have to apply this method to mortgage/rent, tax, etc. to work out the total amount you can claim.

If you don’t work full time from home, you’ll have to work out how many hours you spend in the room and use the same principle as above, but proportion the amount accordingly.

You have to be careful when working this out though — ensure you keep copies of all the necessary records and calculations you used to work out your total costs.

Alternatively, if you don’t want the hassle of working all the proportions out, you can use the flat rate method which goes off the numbers of hours you are working from home:

  • 25-50 hours: £10 per month
  • 51-100 hours: £18 per month
  • 101 hours or more: £26 per month

Using this method will definitely be quicker than working out your actual costs. However, the figure may not end up quite as high. It’s also important to note that the flat rate method only covers the cost of heating, light and power and broadband and telephone. You will still be required to work out your other costs using the method illustrated above.

Of course, you can always ask a tax professional for help when the time comes. But it’s good to know in advance how it works out when considering whether or not to rent office space.

(Photo by Kai Hendry  / CC BY)

Mariah Tompkins is a member of the Association of Accounting Technicians (AAT), the Chartered Management Institute (CMI) and Association of Business Executives (ABE). Mariah has been a licensed accountant since 2008 and runs WKM Accountancy Services, a friendly and reliable practice based in Ilkeston, Derby, England. WKM specialize in offering bespoke accountancy services to small to medium businesses, with lots of experience working with start-ups. Mariah Tompkins is licensed and regulated by the Association of Accounting Technicians to provide services in acceptance with license number 5775.


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