If you’re self-employed and working from home, there’s good news—you might be able to claim working from home tax relief on certain expenses. The UK government offers two ways to do this: Simplified Expenses and Actual Costs. But which one is best for you? Let’s break it down in a super simple way so you can decide how to maximise your tax savings.
What Are Simplified Expenses
Simplified Expenses is a super easy, flat-rate method approved by HMRC. Instead of keeping track of every single household bill and figuring out what portion applies to your business, you can just claim a fixed amount based on the hours you work from home each month.
How Simplified Expenses Work:
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Working from home 25 to 50 hours per month allows you to claim £10 per month.
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If your home office time reaches 51 to 100 hours per month, you qualify for £18 per month.
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Spending 101 or more hours per month working at home means you can claim £26 per month.
For example, if you work from home for 110 hours a month, you can claim £26 per month, which adds up to £312 per year.
Who Can Use Simplified Expenses?
To use this method, you must:
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Be self-employed and regularly use part of your home for business, such as an office, workshop, or creative space.
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Work from home at least 25 hours per month.
If your business involves high utility use, such as a home bakery or workshop, Simplified Expenses may not cover your actual costs. In that case, Actual Costs might be a better option.
What About Actual Costs
If your home-working expenses exceed the Simplified Expenses flat rate, you might be better off claiming Actual Costs. This means calculating the exact portion of household bills that relate to your business.
What Can You Claim a Percentage of?
Electricity, heating, and water bills.
Internet and phone costs, but only the business-related portion.
Office supplies such as printer ink and stationery.
Equipment and furniture, provided they are used exclusively for business.
How Do You Calculate Actual Costs?
HMRC suggests two main ways:
Room-based method: Divide your total bills by the number of rooms in your home and claim a percentage based on the space you use for business.
Time-based method: If a room is used for both work and personal activities, claim only for the hours it’s used for business.
For example, if your electricity bill is £100 per month and your home office takes up 20% of your home, you could claim £20 per month as a business expense.
Which Method is Best?
Both methods have their advantages and disadvantages, so choosing the right one depends on your specific circumstances and business needs.
Simplified Expenses:
Quick and easy to calculate.
No need to keep receipts or track bills.
Best for minimal business use.
May not cover actual costs if you use a lot of energy or space for business.
Actual Costs:
More accurate for those with high expenses.
Allows for larger deductions if your business use is significant.
Requires tracking receipts and doing calculations.
If your expenses are low and consistent, Simplified Expenses might be the stress-free choice. However, if your business takes up a significant portion of your home or uses a lot of energy, Actual Costs could save you more money in the long run.
How to Claim Working from Home Tax Relief
Claiming your working from home tax relief is straightforward:
- Keep records of all business expenses, especially if claiming Actual Costs.
- Choose your method – Simplified Expenses or Actual Costs.
- Include your claim in your Self Assessment tax return under “business expenses.”
- Submit your return before the deadline to avoid penalties.
If you’re unsure which method gives you the best tax break, calculate both. Compare what you’d get with Simplified Expenses versus Actual Costs and go with the higher deduction.
Maximise Your Tax Savings
To ensure you’re getting the most from your working from home tax relief, keep these tips in mind:
Track your hours if using Simplified Expenses to claim the correct amount.
Compare both methods to see which one offers the biggest deduction.
Consult an accountant if your expenses are high to ensure you don’t miss out on savings.
Need Help Claiming?
Tax relief can significantly reduce your business costs, but choosing the right method is key. If you’re still unsure whether Simplified Expenses or Actual Costs will benefit you the most, I can help. Contact us today to make sure you’re not missing out on valuable tax savings.
The more you save on taxes, the more you can invest back into growing your business.
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