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Working from home is very common amongst freelancers.
Home office, bed, sofa, kitchen table, floor, shed, loo, taking a conference call while your 3 year old is welded to your leg, it’s all working from home.
You could be wearing a suit, yoga bottoms, ballgown or bath robe, it’s all working from home.
So are the bills.
Our beloved HMRC understand this and you’re allowed to take some of the costs of working from home off your tax bill.
In fact, working from home expenses is one way I save money for pretty much every client.
To liven up a list of expenses you may be able to claim, I’m writing this from a different perspective, to highlight that a huge range of people work from home.
Allow me to introduce Mr J. Bond.
Mr Bond is a new freelancer with a new business. Let’s re-brand this article so he feels at home.
Mr Bond, you’ve dispatched the baddies and now you’re setting up shop on a tropical island (or corner of the living room with a small pot palm) offering bespoke spy services.
Judi Dench has promised you some referrals, you’ve a brand new office in a corner of your grass hut, and you’re a sole trader.
Being the smooth operator you are, you want to know if you can claim some of your working from home costs, as you’re a UK business and HMRC reaches even to tropical paradises.
(This article is for sole traders only (Am I A Sole Trader Or Limited Company?). If you’re a limited company you can claim working from home costs, you just need to do it differently. If your partner also works from home for an employer (or you do), you need professional advice).
So settle down, sip your coconut, and read on.
You can claim a proportion of the cost of gas & electricity back from your tax bill (it’s called being tax-deductible or an allowable expense). You burn palm tree leaves instead, but the principle is the same.
There is even an official formula HMRC require to work out the right proportion of business to personal expenditure.
It’s based on the size of your grass hut, whether you have a designated office, and how many hours from home you work. For example, hours spent chasing villains is not working from home, so you couldn’t claim for those.
Meter or rates?
Water needs collecting by your Bond girl, so it’s like being on a water meter. That means you can claim a proportion of your water costs off your tax bill according to your business/personal calculation (that’s that HMRC formula again).
If you’d built your grass hut right next to the stream so the amount you used made no difference, that’d be like water rates. Bills based on water rates can’t have a proportion claimed back as the amount you use makes no difference to the amount charged.
Rent? Council tax? Mortgage?
You escape all of that on your tropical island. It’s just as well, as a lot of it isn’t tax- deductible or causes complications if you claim.
You can claim a tax deduction on your rent. However, flat shares, combined rent/bills arrangements, your partner pays the bill etc all complicate it and you really need someone to look at your situation. (Don’t worry though, often things can be sorted out).
You can claim a deduction on your mortgage interest (not the mortgage), however sorting out which part of your payment is which isn’t easy and there is a worse complication if you sell your house.
Most of my clients don’t claim as it’s more important to them not to have a question mark over their house being a business property.
I bet you didn’t know the island monkeys run a telephone service! Enterprising lot they are.
Unless you’ve organised a business contract, the cost isn’t an allowable expense as HMRC argue that you have the phone for personal reasons.
You can claim the cost of business calls.
It can be easier to use a service like Skype or a mobile for all outgoing business calls, so it’s all tax- deductible. Adding up all those calls on a landline bill can take up valuable spying time!
Ah, the glories of the internet, making possible a spy service from a tropical paradise.
It’s a tricky one though working out if it’s an allowable expense.
Do you deliver paid-for client services through the internet, e.g. video streaming, where there is no alternative? If so, you can argue that the full cost of your internet is business.
Examples where you may be able to justify the full internet cost because you must use the internet to deliver your service:
For most of us, the internet is used for marketing (websites, social media) and communications and you need to use the working from home formula to calculate the percentage you can claim (you can find the formula and help using it in the How To Do Your Tax Return course and the Essential Guide To Home Working Expenses ebook).
Other options which are fully tax-deductible are to have a business internet contract or use mobile wi-fi for your business wifi.
It’s better than using yoghurt pots on a string to talk to clients or take a conference call. Except possibly if you’re Q who would probably have a Star Trek like communication device concealed in it.
Freelance spy kit is expensive!
Going for a separate insurance policy for your business assets is a good idea if you have more than just a laptop.
You can claim a proportion of your home contents insurance if you can prove you have those items on it, but to be honest, get a separate policy.
Policy Bee are a small business who understand us home workers (not an affiliate link, I just think they’re ace) and it’s tax-deductible.
If you’re a photographer, blogger with DSLR and kit, videographer, freelancer with laptop/mic/video kit/DSLR/etc then you really need contents insurance for your kit.
And Mr Bond, that’s you too. I know how much that spy kit cost you and it’s not pretty.
You don’t have any! Woohoo!
The costs don’t come off your tax bill, so that’s a lot of expensive helicopter flights saved.
These are usually capital items (assets: anything that will last more than a few years) and not expenses.
They need to go in a different place on your tax return, but if allowable, they are tax-deductible as long as you don’t go over the annual limit.
The limit changes so check every year. The cost of your palm tree desk and chair and your firefly lamp are allowed capital items, a new carpet isn’t.
(I’m not covering capital items here. If you want more information about how to claim them, they’re in the How To Do Your Tax Return course).
You’re allowed the cost of repairs.
For example, a new desk leg when the termites get in or the monkeys crash through the wall.
You won’t be allowed the cost to repair the actual wall, as that’s considered part of your home.
Depending on what the repair is, you can either claim the whole cost or part of the cost according to your working from home formula calculation.
Yes, they even have cake on tropical islands.
It wouldn’t be paradise otherwise would it?
Tuxedo cake is especially suitable for stylish spying.
Unfortunately it’s not tax deductible, as it’s food/ entertainment. Don’t let that stop you though.
(That’s a piece of passion fruit cheesecake in the photo, as I ate the tuxedo cake and brownies. Ahem).
Yes, you can.
There is a flat rate you can claim. This can be the simplest option for freelancers living in flat shares, if your partner/someone else pays the tax-deductible bills or your rent agreement combines rent and bills.
Depending on your situation, it can also save you money and time to claim the flat rate rather than the working from home formula calculation.
Bear in mind though, that for most freelancers, it’s worth the hassle of the calculation as the difference can be a few hundred pounds. This is especially true if you live in a tiny flat.
Home working expenses is the area most new freelancers miss out.
So many times a new client has seen how much money they’ve missed claiming – although not any more once we have our coaching.
My main tip is to pay home working expenses some attention as not only can you save money, you need to stick with the same method of claiming until you move.
The How To Do Your Tax Return course has all you need to claim your home working expenses and all your other expenses. Buy now and you could be downloading it in under a minute.
For just home working expenses, the Essential Guide to Home Working Expenses ebook for the home working calculation formula and step by step guidance.