What expenses can I claim when working from home?

Director of Tax
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It’s a pretty basic question; “What can I claim, for working from home?” The answer is straightforward only when you recognise the variations in practice. The self-employed have different rules compared to employees, and not all employees are treated equally. In this article I am looking at claims from the perspective of the self-employed.

Introduction - motive and duality

You will have had it drilled into you from text books that some expenses are incurred with a private subconscious motive and so are not allowable at all (known as the 'fatal duality'), whilst others may have been incurred at least in part for some private motive, but you are nevertheless allowed to claim a proportion. This creates some rather strange results – the...

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A question of judgement
It is not possible to give an example to suit every situation. it is a case of reveiwing the use of the room(s) and then applying your judgement as to what is fair. If you end up taking a case to tribunal this is exactly what the tribunal will do.
So keep records of what you have claimed and why .

The controversial part is what to do if a room is not used for business purposes at night. It seems logical to me that if is actively being used for private purposes when the busines in not in operation, then you will need to apportion the cost. If however, there is no private use as it is just left empty, it seems sensible to apportion all to business. If you want to split hairs you could keep a diary for the room and then apportion on that basis.

Obviously if you are working via a compay, it is much easier to grant yourself a licence and then just pay a fixed charge. You cannot do this as an individual with yourself though.

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Still too many unknowns
I agree with David Whiscombe – the HMRC examples add little clarity to a generally murky area.

In comparing the examples of Chris and Gordon, the only apparent difference is that Chris is using a room that is mainly a private room (the ‘living room’), whereas Gordon is using a room that on balance has a bigger business function (including housing various business equipment). Where do we draw the line?

Accountant in Brighton

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Photo diary
If you have a "dual purpose" office it can be helpful to take photos of you using the room for business & private purposes . A photo record can be jolly helpful in demolishing a claim for CGT PPR restriction.

In my case it has also had the advantage of shaming me into tidying up my clutter.

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Publishing delays
I am doing some courses on Working From Home for Accountingweb, and so I have been updating my material for those as a priority.
Other than that it is just lack of time. Just running around like a mad thing trying to ensure that we have tax coverage of everything else which is current on the site. The other articles should be out soon!

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Next articles

You mention in your comment on 9th Jan another 2 or 3 articles. Are you still intending to do these as I haven't seen them published and await with baited breath......!

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Use of water
Somewhat belatedly catching up with my New Year reading, I was taken by Tim Hervey's comment back to my early days as a tax inspector (I'm not going to say exactly when, but we were still using the 1952 Act...). I heard from a colleague of an apportionment of water rates by a self-employed accountant who worked from home. He claimed that he often received books from clients (especially jobbing builders) that were "covered in muck", so that frequent handwashing to rid himself of exclusively business dirt was an essential element of his business activity. Apparently sufficiently plausible (or inventive) for the apportionment claim to be allowed...

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sorry to digress on this thread further but some care is needed here re teachers, certainly if we are considering primary. A couple of years ago things were changed again to give them release time in the week to do some/all of the things Grace mentions. I would suggest that a careful reading of their contracts and associated LEA terms and conditions is needed before reaching any firm conclusions. HMRC could argue that they could use school accommodation during the release time to do these tasks (since that is what it is for) so doing the work at home in the evening is now their choice. Also HMRC historically have always tended to dig their toes in on any employee expenses and anyone who wants to take the point should be ready with cast iron arguments.

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Expenses for Teachers
I don't remember the details, but the rules for teachers changed a few years back, when they got a new standard contract. The contract said that they were required to do considerable marking & preparation work and in the nature of things much of this would have to be done in the house. This was because there were mutterings among the teachers that they should be paid overtime if they had to work outside school hours.
However, that then meant that home working was written into their contract so that any home office expense now became "necessarily" incurred in the performance of their duties. Your wife is entitled to claim her expenses as actually incurred. I would think heating the room for (say) two hours a night in term-time would be a good start. Not difficult to read the meter before & after & work out the cost.
The more specific you are about the cost and the more work you put into identifying the actual cost e.g. reading the meter, the less the Revenue can argue.

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Rules for the employee
- will follow next, and then owner-directors.

This is actually a three part article, but I think I might extend it to a four parter to include special considerations for offices in gardens/extensions, such as VAT and CGT.

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Self employed
Dilwyn I'm sure you've realised now but this article is about self-employed only. The rules for any expenses for employees are much tighter.

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Business rates exemption
In most cases the possibility of business rates is not an issue. This is because a tribunal case concerning an HMRC employee who worked at home was decided in favour of the individual.

Business rates are only an issue if either a prominent business plate outside the property advertises the individual's services and/or a succession of clients or customers visit the property regularly.

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Case law
At the upper end of the spectrum there is one case that was heard by the Commissioners regarding an accountant who worked from home. Gazelle v Servini demonstrates that a fairly substantial claim can be made, but obviously with the loss of some CGT PPR exemption.

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Limited Company use
I am currently arguing a case with an Inspector where the client operates as a limited company from his residence. What difference does this make to the expenses claimed? He is trying to disallow rent and rates after 6.5.06, water where it is not metered and light and heat over £2 per week. The client operates a catering business from an outhouse and the whole property is rented. Use of water and power is considerable and far outweighs private use.

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Limited Companies

I believe the best way to deal with Limited Companies is for the Company to pay the Director rent for ue of the house as office. The Director has to declare the rental income on his pers tax return but can then deduct a proportion of expenses as per the above article. This is only worth the effort if you have a dedicated office in the home and do most of your work in the home office.

Nichola - Do you agree with this?

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Business rates
I seem to recall being told a few years ago that there was an increasing risk of being assessed for business rates if one was overzealous in claiming home use.

I can see the logic re CGT only applying if there is a dedicated business proportion. Is the same true of business rates?

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Water rates and sewerage rates
Thanks for the timely reminder Nicola. This article is an update/repeat on your previous article, http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=163992, which I have been referring to quite alot recently! The only point that has changed is with respect to water rates.

In that earlier article you said: "*There is no detail on fixed water rates, but it is assumed that these can be apportioned. The manual later says: “In the case of minor business use of the premises, such as writing up records, there is no business use of water and so none of the water charge is allowable.” This does not square up with the revised guidance, but the cost is going to be so small that I would not worry about it."

In this article, you say: "Expenses not to claim

Water rates, if there is no business use of water. A business with employees will need water."

Surely a self employed person uses water during their working day (eg tea, coffee, flushing loo) and so should claim a proportion. Or is this a bit like Mallalieu v Drummond in that such use of water is duality of purpose? What about washing the car used both privately and for buisness?

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What about teachers?
In 2002, we tried to claim back some tax for the time my wife, a secondary school teacher, spent at home doing marking and preparation. The claim was rejected, on the grounds she was exercising personal choice to do the work at home, despite the fact the school was unheated, closed and alarmed in the evenings. However, it seems very similar to example 1 in the article.
We would be interested to hear if this type of claim was now allowable, or stood a better chance of success.

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Not so logical
Some of the HMRC examples show just how subjective this pseudo-science really is. Take Bill and Bert for example. Bill uses an office "exclusively" for his trade (though we are not told how often he uses it -so apparently it doesn't matter). It's OK for him to claim general costs by reference to area. Bert on the other hand uses a room for business - apparently exclusively (albeit infrequently) for most of the year - yet a similar apportionment for him is "far too much". Why, pray? Instead he estimates that the relevant is cost is £104, which is "a reasonable estimate" which "reflects the facts of the case." On what basis? As with Angela, the answer seems to be "no-one cares - no-one is going to argue about £2 a week".

Chris and Gordon are interesting too. Chris seems to be apportioning her fixed costs by reference to the small proportion of the whole 24-hour day that the room is used for business. Gordon seems to be apportioning by reference to the ten hours a day in which the room is actually used for any purpose (and including as business use the full eight hours a day even though he is actually present for only half that time). It's difficult to see why there's such a difference when Chris and Gordon are each using a room solely for a business purpose for some of the day and using it for non-business purposes for some of the day.

It's helpful to have some examples: but to suppose that they demonstrate any clear universal principle is a bit optimistic!

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