Tax treat: the different rules in claiming tax relief on use of home
Different rules apply depending on whether you are an employee or self-employed when claiming tax relief against income or profits for the costs of using your home for business purposes.
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Sole trader |
Employee |
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General rule |
May claim all business expenses or if an expense is part-business/part-private may claim an identifiable proportion of that expense. |
May only claim expenses if incurred wholly, necessarily and exclusively in performance of employment duties. This excludes expenses which are part-business/part- private. Where home working is undertaken by personal preference no claim is possible. |
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What type of expenses |
Light and heat, mortgage interest, council tax, insurance, utilities, broadband, telephone and other running costs. |
Claims limited to metered use of light and heat and itemised telephone calls. Claims for other costs may be possible depending on the nature of the employment.
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instead of claiming actual expenses are there any HMRC approved allowances? |
£3 per week |
£3 per week |
| Read more |
Top tips and pitfalls
If an employer reimburses an employee’s expenses under a homeworking agreement there will be no tax liability for the employee provided that the expenses qualify for relief under the general rule. This strategy is more beneficial for the employee because the employer bares all the costs.
A company director of an incorporated business may enter into a licence agreement with the company for non-exclusive use of an office in the director’s house. This rental income can then be set against a proportion of the household expenses on the director’s personal tax return.
See
Pitfalls
Any use of home for business purposes may be contrary to a mortage agreement. The local authority may also consider charging business rates, although currently small business rate relief applies. Where business rates are charged, council tax is discounted proportionately.
There will be Capital Gains Tax issues to consider where any part of a home is used exclusively for business.
Rent a room relief may not be claimed where a room is rented to a business.
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You might also like:
Tax relief on converting part of a home into an office
Licence for non-exclusive use of a property
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