Home office expenses are often overlooked as a way to cut tax bills for landlords – because many property people do not understand the rules.
So here’s a home office guide that lets every landlord claim some expenses – depending on the home office they run.
Home offices come in three types:
Knee top home workers
Landlords who relax on the sofa for an hour here and there to update a spread sheet or send a few letters from their lap top. These home workers can claim £4 a week (£208 a year) and can rest assured HM Revenue & Customs will not challenge the claim as their own in-house guidance tells them not to bother.
Don’t keep any receipts or other paperwork; just add the £208 to your ‘Other expenses’ section of the property rental income and expenses pages of a tax return.
Landlords who have cleared a little space in the bedroom or dining room for a computer, filing and other barebones office equipment – in some cases these homeworkers can claim more than £4 a week, but they will have to keep financial records to prove the claim, which may not be worthwhile for just a few pounds more.
These are landlords with a study or spare room as a dedicated office. These landlords have to keep financial records, but should claim a lot more than £208 a year as home as office costs
What home workers can claim
- Mortgage interest
- Home insurance
- Home repairs – exterior and to the rooms in use
- Cleaning – if someone comes in to clean
This is not an exhaustive list – and does not include general business expenses like the phone, broadband, computers and other office equipment.
Making the claim
If your business has the run of part of your home, you can claim a fair percentage of the running costs, like mortgage interest, home insurance, council tax, repairs and utilities.
These are separated from private use by the sci-fi sounding calculation of space and time.
For instance, if your office is 20% of the floor space of your home, then you would think apportioning 10% of utility bills to business use would work.
No, because you have to consider time as well, so if you spend six hours a day, five days a week in your office – which represents 10% of the property – then this is the calculation:
- 5 hours x 5 days = 25 hours
- 48 working weeks a year x 25 hours = 1200 hours business use
- Hours in 48 weeks = 24 x 7 days x 48 weeks = 8064
- Business use = 1200/8064 = 14.88% = 15% (rounded up)
- Office = 20% of your home
Charge to business
- Annual utility bill = £550
- Apportioned to home office @ 20% = £110
- Apportioned to business @ 15% of time office in use = £16.50
As with all things tax, it’s not the big numbers that make the difference, but stacking up lots of little ones – after calculating home office expenses for the other costs listed above, you could make quite a tax saving every year.