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We’re sure you aren’t shocked to hear that a lot more people are working from home these days. 🏡
From filing taxes to sorting invoices, the home is the new work hub.
And, it has its perks – less commuting time, your own personal space and greater flexibility, to name a few. 🤸
But, with the good comes the not so good.
Working from home isn’t exactly cheap. Frequent use of your broadband, electricity and heating, is sure to drive up your household bills.
Expenses are costs incurred from the day-to-day running of a business. If you work from home, these may include:
The good news is, depending on your situation, you can claim your expenses against your earnings and pay less tax.
We’re afraid not. 💔
If you’re self-employed and work from home, you won’t be able to expense your mortgage because you’re already entitled to the simplified allowance.
Spoiler alert! It’s not all bad news. 🚨
The simplified allowance is a flat rate expense (£312), which self-employed people can claim against their business expenses instead of working out their individual costs.
It also allows you to reduce your self-employment tax bill. 📉
It’s a great hack to know about if you don’t have big expenses, can’t find your receipts, or don’t want the hassle of HMRC querying you. 😅
We’re not certified magicians, but if you’re self-employed and working from home here’s a trick or two🪄:
Take the simplified allowance (£312), add the cost of your broadband and voila!
You won’t have to worry about digging up old receipts or calculating costs, making it the quickest and easiest way to claim your expenses. The only downside is that you won’t be able to claim the ‘use of home’ allowance on top
Calculate a % of all your home costs, including your mortgage interest (not mortgage repayment) and claim the appropriate %
This one’s a bit more complicated, which is why we’re going to unpack it more below👇
The Home Office Allowance is a flat rate that you can claim if you’re self-employed and use your home for work.
Audience cheers! 👏
It’s done through a system known as simplified expenses, and the amount of Home Office Allowance you can claim depends on how many hours you work from your home each month. 📅
Put not quite so simply, you’ll need to calculate a % of all home costs, including mortgage interest (not mortgage repayment) and claim the appropriate %.
Sounds a bit tricky, right? Well, don’t worry! We’re going to break it down for you. 💪
You’ll need to start by calculating the total interest on your mortgage.
You can use this formula 👇
Monthly repayment ÷ by 100 x Interest payment = Total interest on your mortgage
Let’s follow this example:
So, 800 ÷ by 100 x 3 = 24 ✨
Now you know that you owe £24 each month in interest, you’ll need to calculate how much of this you can claim as part of the ‘use of home as an office’ allowance. 🛏️
First, you’ll need to calculate how much time you spend working from home in a month.
Let’s say you work Monday to Friday 9 am to 5 pm from home. That’s 8 hours per day.
You can calculate your percentage of ‘use of home as an office’ by using this formula 👇
Hours worked in a month ÷ by total hours in a month x 100
If you use your home as an office 8 hours a day, 5 days a week, you work around 160 hours per month from home.
And, in a 30-day month, there’s 720 hours. ⏰
So, 160 (hours worked in a month) ÷ by 720 (total hours in a month) x 100 = 22.2%
This means you can claim 22.2% of your mortgage interest every month.
As we’ve said, your monthly mortgage interest is £24 and 22.2 % of that is used for your business. Now, you can calculate how much you can claim on your tax return. 🗒️
£24 (interest amount) ÷ by 100 x 22.2 (percentage of use for business) = 5.32
So you can claim £5.32 per month on your tax return, equalling a total of £63.84 per year.
If you own a property and choose to use the second method, ‘use of home office’, you’ll need to think ahead. 🔮
Claiming the ‘use of home as an office’ from the interest on your mortgage for many years and/or adding renovation costs, could increase the percentage of the property which is not your Private Residence. 👋
This means you may have to pay Capital Gains Tax if you decide to sell your property in the future.
Read more about this in our guide about when you owe CGT if you sell your house.
Capital Gains Tax is the tax you pay when you sell an asset (a property, shares, Bitcoin, personal possessions etc.) for a profit. Any profit you make is known as a capital gain. Here’s the rate that you’re charged for various investments:
|Type of asset||Basic rate||Higher rate|
Well, in most cases you’ll get more bang for your buck with the simplified allowance (£312) + broadband. 💸
That’s unless you pay a lot in rent for a small shared space, e.g. London. This is because your costs are probably higher and your % of space is probably higher. 🏙️
And, if you’re renting, you can forget about Capital Gains Tax. You only have to pay this when you sell an asset (property, shares, personal possessions) for profit.
Now you know the ins and outs of expensing your mortgage, will it be back to the office or back to bed?
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