Expenses freelancers can claim on their self-assessment
Working from home can be a great way to save money as it can be a better alternative than renting an office space. There is also the choice to claim for use of the home for freelancers, which enables them to lower their tax bill a considerable amount.
The home expenses you can offset are widespread, nevertheless, they do require calculations in order to be claimed. With the deadline right around the corner here, GoSimpleTax, guides you through the complete list of home expenses, as well as the claiming process.
A disadvantage to working from home is that you’ll be using your utilities a lot more. You can expect to see higher charges for bills such as gas, electricity and water. Similarly, you may use the telephone and internet more too. And the more time you spend at home, the more likely that there will be wear and tear which means there may be more repairs needed.
Luckily, you are able to claim for the proportion of these that you use when working, along with council tax. To calculate the amount, a method is required. This could be dividing the bills by the number of rooms used for business, or the total time spent working from home.
The flat rate and other calculations can also be applied to the rent you pay your landlord, or your mortgage interest if you own the home. These can be claimed on even though they are fixed costs and so don’t increase with home working.
However, it’s important to note that there may be Capital Gains Tax to pay if a room is used solely for business purposes, and you then sell your home. A way to get around this would be to ensure that space is used for multiple things such as a music room or home gym.
How to calculate the use of the home
Calculating the ‘number of rooms’ method annually for your utilities would follow this example formula:
Annual mortgage interest: £6,798
Heat and light: £2,400
Council tax: £1,750
Water rates: £450
This figure would then be divided by the number of rooms, under the assumption that each one uses the same amount of electricity. So, if you had a seven-room home and used one as your workspace, you could claim £1,628 per year.
For the ‘total time’ calculation, firstly, you would divide £1,628 by the number of hours in a week (168), and then multiply this sum by how many hours you spent working at home. If this time was 30 hours each week, then you would claim £290 per year.
Simplified home expenses
There is the choice to use simplified expenses for utilities, excluding the telephone and internet. These allow you to claim for a flat rate, rather than calculating the exact cost of each utility. They do require certain criteria to be used, however – you need to work over 25 hours from your home each month, and you can’t operate via a limited company.
The more hours you work, the more your offset builds. If you work from home for 25 to 50 hours a month, you can claim £10 per month; 51 to 100 hours allows you to offset £18 per month, and any hours greater than this will mean that you can claim £26 each month.
Travel is another expense you may be able to claim. Whilst you won’t need to commute to get to your place of work, there may be business trips you take. You can claim for the journey as an allowable expense. The fuel can be offset if you drive, and flat rate expenses can be used for car mileage too.
If you instead use public transport for business travel, then you can claim for train, bus, air and taxi fares. Moreover, parking, hotel rooms and meals on overnight business trips can also be claimed.
More on freelance taxes and working from home.