How to Calculate and Claim Work From Home Expenses
Did you know that if you work from home, you may be able to claim tax breaks on certain bills and expenses? Working from home offers all sorts of benefits for employers and employees alike, while studies have found that working from home increases staff morale and productivity. If you have to work from home on a regular basis, you may be able to get the tax back from some of your bills.
Eligibility for Claiming Expenses
Broadly speaking, individuals who work from home, whether as part of their employment or because they are running a business from their residence, can claim work-from-home expenses. To qualify, you must be performing substantive work directly related to your employment. The key here is that you must have been told to work from home by your employer, not just choosing to do so voluntarily. To qualify for that coveted working from home tax relief, you need to be carrying out your job duties under a formal homeworking arrangement.
However, you cannot double dip. If your employer is already reimbursing you for these additional costs, you can’t also claim tax relief on top of that. It’s one or the other.
Types of Work From Home Expenses
When using a room at home as an office, tax authorities allow you to deduct costs from your taxes. These generally fall into two categories: running costs and occupancy expenses.
Running Costs
Running costs are the extra costs that sneak up on you when your home suddenly becomes your office. These include:
- Heating, lighting, and electricity: The extra cost of gas and electricity for your work area.
- Phone and internet: Business telephone calls and internet expenses, though you can’t claim for things that you use for both private and business use.
- Consumables: Printer paper, ink, stationery, and other computer consumables.
- Cleaning: Cleaning costs for your home office area.
- Depreciation: The decline in value on home office equipment such as computers, furniture, and printers.
Occupancy Expenses
Occupancy expenses include rent, the interest on your mortgage, property insurance, and council rates. In most cases, individuals whose home is their primary place of business can claim this deduction. This means a portion of your home must be dedicated solely to your business, and it should be a space that is not used for any other purpose.
How to Calculate Your Claims
When it comes to claiming those precious working from home expenses, you’ve got a choice to make between different calculation methods. The following table provides a breakdown based on standard guidelines:
| Method | Description and Requirements |
|---|---|
| Flat Rate Method | If your claims are no more than £4 per week (£18 per month), you don’t need to provide any records or receipts. |
| Actual Costs Method | If you’re claiming for more than £4 per week, you’ll need to provide evidence of what you’ve spent. To get the full amount back on items like computer equipment, the purchase should be less than $300; otherwise, it is based on depreciating value. |
| Shortcut Method | Allows individuals who worked at home to claim a set rate (e.g., 80 cents per hour) for all running expenses over the number of hours worked. |
Capital Gains Tax Implications
There are certain tax implications when it comes to selling your house if you designate a room in your home purely as office space, with no personal uses. If your home doubles as your principal workplace, be aware that it could be partly subject to Capital Gains Tax (CGT) upon sale. The taxable portion is usually tied to the area of your home used for business—which is around 10%.
Record Keeping and Evidence
While you don’t have to submit a mountain of evidence upfront when claiming, it’s still a smart idea to keep records of your extra costs. Some documents approved as evidence include diary entries, bank statements, and receipts. Make sure to keep a record of the number of hours you worked from home in the form of a roster, timesheet, or a diary so that you have evidence of the expenses incurred.
