This story was submitted by Keith Tully and does not constitute the views or opinions of Upwork. This article does not address all tax issues, and it cannot and should not be relied upon as legal or tax advice. Readers should seek tax advice based on their particular circumstances from an independent advisor.


Working from home on a freelance or self-employed basis means you can claim a number of household overheads against tax. These costs, or the proportion that relates to business use, are deducted from profits and reduce your overall tax liability for the year.

Proportionate business use

According to Her Majesty’s Revenue & Customs (HMRC)—the UK’s tax, payments, and customs authority—household overheads should be apportioned between domestic and business use on a “fair and reasonable basis.” Using the number and use of rooms in your home is one of the best ways to do this.

  • A single room used entirely for business purposes. If you use one room to work from 100 percent of the time, count the number of qualifying rooms in your home and divide the bill by this number.
  • A single room used partly for business purposes. If one room is used for business purposes only 75 percent of the time, divide the bill by the number of qualifying rooms as above, and then apply this percentage to the resulting figure.
  • More than one room used partly for business purposes. If you use more than one room for business, you need to decide how much time you spend working in each room. One room might be used for business purposes 75 percent of the time, and another just 10 percent if you only use it for sending the occasional invoice, for example.

HMRC describe qualifying rooms as “normal living spaces” so this excludes bathrooms, hallways, and landings, and potentially your kitchen.

It’s worth knowing that if you dedicate a single room for business, and don’t use it at all for domestic purposes, you may become liable to pay Capital Gains Tax (CGT) if you sell your property at a later date. Your local council may also charge business rates.

Other overhead expenses you may be able to claim

You may be able to claim some or all of the following costs:

Gas and electricity

If you work at home for 25 hours per month or more (on average), are a sole trader, or are involved in a business partnership that has no limited companies as partners, you may be eligible to use a flat rate method of calculating your allowable heat and electricity costs.

This system is called simplified expenses, and can be used instead of the actual costs method described above. You multiply the number of hours worked from home each month, on average, by a fixed amount set by HMRC.

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

Phone and broadband

You can claim the business element of your phone calls using an itemized bill, which you should retain as supporting evidence. As far as line rental and broadband costs are concerned, it’s likely that you’d pay these bills even if you didn’t run your business from home, so it’s difficult to separate business from domestic use.

Mortgage interest

If you have a mortgage, although you cannot claim capital repayments, you are able to set the interest element against tax.

Rent

You may be able to claim a proportion of your rent using the number and usage of rooms method of apportionment.

Council tax

The number and use of rooms is also a good way to apportion your council tax bill.

Insurance

Dedicated business insurance policies are allowable in their entirety. Domestic insurance policies can be apportioned in the same way as rent and council tax.

Property repairs/cleaning

If repairs affect your entire property, you can claim a proportion using the actual cost method described above. Should a repair only affect a room that you work in, you should apply the percentage you use it for work against the cost, to arrive at a claimable amount.

Conversely, if the repair doesn’t affect any of the rooms in which you work, you cannot claim any of the cost. Cleaning bills can be apportioned using the number and use of rooms method.

Understanding how to apportion business costs is an important part of HMRC compliance. By accurately calculating your overheads using either the actual cost method or simplified expenses, you avoid unwanted attention from HMRC and reduce the likelihood of being selected for a tax inspection.


This story was submitted by Keith Tully and does not constitute the views or opinions of Upwork. Find out how you can publish your content on Upwork.