If you work from home, you can claim some of your home utility costs as a business expense, saving yourself a bit of tax. What you can claim, and how, depends on whether you’re a company director or sole trader.
What utility expenses can company directors claim?
Option 1: Claim a flat £18 per month “working from home” expenses
It’s as easy as that! You don’t even need to keep any receipts. However, if you work a lot from home, you may be able to claim more using the alternative method below.
Option 2: Claim a proportion of each utility bill using a reasonable calculation
There’s no set definition of what counts as a “reasonable calculation”, but we recommend the following method.
1. Divide the utility bill by the number of rooms in your house, excluding bathrooms.
E.g. You have an electricity bill for £320 and your house has four rooms excluding bathrooms. Your per room cost is £320 / 4 = £80 per room.
2. For each room you work in, divide the number of hours you work in the room per day by the total number of hours you spend in the room per day. Multiply this by 100 to get the percentage of time you spend working in the room.
E.g. You spend a total of 8 hours per day in the lounge. 2 of those 8 hours are spent working. 2/8 x 100 = 25%.
You spent a total of 5 hours per day in the study. 4 of those 5 hours are spent working. 4/5 x 100 = 80%
3. Multiply the room cost by the percentage.
E.g. Lounge: 25% x £80 = £20
Study 80% x £80 = £64
4. Add these together to get the total claim for the utility bill.
E.g. Total claim: £20 + £64 = £84.
What utility bills can I apply the above method to?
For company directors, the above method can only be used for heating and electricity bills. Directors can’t claim fixed costs like insurance, mortgage repayments, repairs, council tax or cleaning. However, it’s a different story for sole directors (see below).
Top tip: Whether you’re a company director or sole trader, it’s best not to use any room solely for work. If you do, you may have to pay capital gains tax on it when you sell your house!
What utility expenses can sole traders claim?
Like company directors, sole traders have two options. They can use option 2 exactly as above to calculate a “reasonable” claim for their utility bills. Unlike company directors, sole traders can use this method for home insurance (but only if it also covers their business), rent, council tax, repairs, and cleaning bills that apply to the whole house, and the interest on mortgage payments (only the interest, not the full payment).
Alternatively, they can use a simplified monthly flat-rate allowance for heat and electricity bills, though this is slightly different from the one for company directors.
NB The simplified method for sole traders only covers heat and electricity. You should use the proportional method for the other expenses mentioned above (rent, council tax, etc).
The simplified allowance allows sole trader to claim a flat rate based on the hours they work during a month. The rates are as follows.
25 to 50 hours: £10 per month.
51 to 100 hours: £18 per month.
101+ hours: £26 per month.
For example: during the year, you work for 30 hours from home per month for 9 months and 60 hours from home per month for the other 3 months. Your total claim for the year is (9 x £10) + (3 x £18) = £144.
Feel free to get in touch with us if you have any questions about claiming utility bills or other expenses.